The Organization for Economic Cooperation and Development has adjusted upwards revenue estimates from its international tax framework, with a full report forthcoming.
Comprised of what are known as two “pillars,” the OECD’s cross-boarder tax model—which has been agreed upon by 140 countries—is projected to yield significantly more revenue than initially forecasted in its Economic Impact Assessment released October 2020. The first pillar applies to multinational enterprises (MNEs) with revenues exceeding €20 billion and have profitability over 10%, and allocates 25% of excessive profit to market jurisdictions where the MNE has quantitative nexus. Pillar Two serves as a 15% book minimum tax based on financial statements.
According to new OECD analysis shared at a January 18 webinar, Pillar One annual global tax revenue gains, based on 2021 data, are expected to be $13-36 billion. About $200 billion in profits are now expected to be allocated to market jurisdictions each year (previously $125 billion), which will largely benefit low- and middle-income countries. Pillar Two annual revenue gains have been revised from $150 billion to 220 billion, accounting for 9% of global corporate income tax revenues.
David Bradbury, deputy director of the OECD Centre for Tax Policy and Administration, explained at Wednesday’s presentation that the new estimates are based on “more recent and better data,” such as country-by-country reporting figures showing significantly increased coverage.
“And that increased country coverage means that the areas where we have to extrapolate and estimate data have been reduced because we have more hard data … as a result of more countries reporting,” said Bradbury. The country-by-country reporting data covered 82% of profits in the OECD’s latest analysis, compared with 63% in its 2020 estimate.
The OECD used five data matrixes, each with their own specific purpose and combination of information sources. These covered the areas of corporate profit, turnover, assets, employees, and payroll. A comprehensive economic impact analysis and accompanying methodology report will be made available “in the coming months,” according to an OECD press release.
“The international community has made significant progress towards the implementation of these reforms, which are designed to make our international tax arrangements fairer and work better in a digitalized, globalized world economy,” OECD Secretary-General Mathias Cormann said. “This new economic impact analysis again underlines the importance of a swift, efficient, and widespread implementation of these reforms to ensure these significant potential revenue gains can be realized. Widespread implementation will also help stabilize the international tax system, enhance tax certainty, and avert the proliferation of unilateral digital services taxes and associated tax and trade disputes, which would be bad for the global economy and economies around the world.”
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