The Prospective Global Tax System Reforms and Several Countries Opposed

The statement on a two-pillar solution to address the tax challenges raised by the digitization of the economy was issued on July 1, 2021. The new rules was released by the Organisation for Economic Co-operation and Development (OECD).

The Agreement renews important elements of the old international tax system, which is no longer adequate in a globalized and digitalized 21st-century economy. According to the Pillar One of the statement, large companies would pay more taxes in countries where they have customers (earn profits) and a bit less in countries where their headquarters, employees, and operations are.

Accordign to the Pillar Two, the agreement sets up the adoption of a global minimum tax of at least 15 %, which increases taxes on companies with earnings in low-tax countries.

The two-pillar package will provide essential support to countries lacking necessary supplies to repair their resources and their balance sheets while investing in essential public services, infrastructure, and the measures necessary to help strengthen the post-COVID recovery process.

According to OECD Secretary-General Mathias Cormann, after years of intense work and negotiations, this historic package will ensure that large multinational companies pay their fair share. This package does not eliminate tax competition, but it does set multilaterally agreed limitations on it.
Organization for Economic Co-operation and Development (OECD) includes 139 countries and jurisdictions. Of all these countries, only nine opted out: Kenya, Nigeria, Peru, Sri-Lanka, the three EU countries: Ireland, Hungary, and Estonia, and two Caribbean islands generally considered tax havens: Barbados, and Saint Vincent and the Grenadines.

The three countries: insisted on one particular point: any OECD deal must meet the needs of all countries, both large and small. Ireland, Hungary, and Estonia see their attractive corporate tax rates as an indispensable tool to compete against the most powerful economies.

The decision from Dublin, Budapest and Tallinn immediately cast a shadow over the EU’s negotiating position, as according to the EU treaties, any changes to tax policy need to be approved by unanimity, which means that if even one is opposed, it is enough to obstruct a reform supported by the other member states.

In the best-case scenario, the new rules could come into force as soon as 2023, although the difficult negotiation process could delay the official implementation.