OECD/G20 Inclusive Framework Aims for Global Tax Reform

The OECD/G20 Inclusive Framework is working towards a major overhaul of the global tax system. This ambitious project aims to create a more level playing field for all countries and ensure that multinational corporations pay their fair share of taxes.

The Framework's main goal is to address the challenges posed by the digitalization of the economy, which has led to the erosion of tax bases and the shift of profits to low-tax jurisdictions. This has resulted in a significant loss of revenue for many countries.

The Framework's proposed reforms would establish a global minimum corporate tax rate, which would prevent companies from taking advantage of low-tax regimes to avoid paying taxes. This would help to ensure that companies contribute their fair share to the public purse.

The OECD/G20 Inclusive Framework has been working on these reforms since 2018, and has made significant progress in recent years.

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The OECD/G20 Inclusive Framework has proposed two main tax reforms: Pillar One and Pillar Two. Pillar One allocates taxing rights over large multinational enterprises to countries where they have a significant customer base, even if they have no physical presence.

Pillar One targets companies with global revenues of €20 billion or more and a profit margin of over 10%. It allocates 25% of "residual profit" to countries where an enterprise has at least €1 million in revenue.

Pillar One initially targeted only companies providing digital services, but the agreed-upon plan applies to all industries except financial and extractive industries. This means income of a firm exporting pharmaceuticals or manufactured goods could be taxed by the importing country.

Approximately 78 companies would be affected by Pillar One rules, with 37 of them from Europe. A large proportion of the tax revenue allocation would be from technology firms, with 85% of that from U.S. firms.

Pillar Two introduces a global minimum corporate tax rate of 15% on multinational enterprises with revenues above €750 million. This aims to limit tax competition between countries and curb profit shifting by reducing the incentive for companies to move their income to tax havens.

Around 2000 multinational enterprises are targeted by Pillar Two, and around 55 countries have taken steps toward implementing the global minimum tax. Over 50 jurisdictions worldwide have implemented Pillar Two rules as of 2025, with further jurisdictions indicating an intention to introduce the rules in the near future.

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Here's a breakdown of the countries that have implemented Pillar Two:

The global minimum tax rate will not apply in any country with a domestic corporate income tax rate of at least 20% until 2026. This means that countries like the U.S. will not have to pay the top-up tax until then.

The OECD continues to issue Administrative Guidance addressing specific provisions of the Model Rules under Pillar Two.

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The Inclusive Framework meeting was the first since the US President issued an Executive Order on the OECD "Global Tax Deal" in January 2025.

This meeting's statement emphasizes the importance of certainty and stability in implementing Pillar Two, with ongoing negotiations on Pillar One. Affected companies should stay informed about these discussions and consider engaging with policymakers in their operating countries.

The Inclusive Framework plans to review its BEPS work to date and explore new areas of common interest, providing opportunities for stakeholders to contribute and enhance certainty for businesses.

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As the global tax landscape continues to evolve, it's essential to understand the implications of recent developments. The first Inclusive Framework meeting since the US President Trump issued an Executive Order on the OECD "Global Tax Deal" has significant implications for affected companies.

This meeting marked a critical step in the ongoing negotiations on Pillar One and the implementation of Pillar Two. Companies should be aware that member jurisdictions are committed to achieving certainty and stability in their implementation of these new tax rules.

The Inclusive Framework statement emphasizes the importance of continued discussions to achieve this objective. This means that affected companies should monitor developments closely and consider engaging with policymakers in the countries where they operate.

The statement also mentions future work of the Inclusive Framework, including a review of the BEPS work to date and potential exploration of new areas of common interest. This could provide opportunities for stakeholders to provide input and shape the direction of future tax policies.

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Here are some key takeaways from the Inclusive Framework statement:

Canada has recently announced its intention to rescind its digital services tax, joining a growing list of countries that have taken steps to address the issue of tax avoidance by multinational corporations. The OECD had previously brokered a multilateral clampdown on profit shifting after the 2008 financial crisis, which eliminated some of the "most egregious tricks" of "aggressive" tax avoidance.

The digital services tax was introduced by many countries, including Canada, due to frustration that domestic media advertisers and retailers were losing ground to digital multinationals who paid little or no tax domestically. A DST is a tax on digital activities within a jurisdiction, which ensures that large digital enterprises pay tax in a country where their users and customers are located, even if they have no physical presence there.

The OECD/G20 Inclusive Framework agreement aims to address the issue of tax avoidance by multinational corporations, and Canada's decision to rescind its digital services tax may be seen as a step back from this goal. However, it's worth noting that Canada is not alone in its decision, and the OECD continues to issue Administrative Guidance addressing specific provisions of the Model Rules.

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The OECD/G20 Inclusive Framework has released Model Global Anti-Base Erosion (GloBE) rules under Pillar Two, which set forth the “common approach” for a global minimum tax at 15% for multinational enterprises with a turnover of more than EUR750 million. This may provide a more effective solution to the issue of tax avoidance by multinational corporations.

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International Cooperation is a crucial aspect of the OECD/G20 Inclusive Framework. The framework has brought together 137 countries to work towards a common goal of fair taxation.

The agreement has led to the development of a Two-Pillar Framework, which aims to address the challenges of global taxation. Pillar One focuses on nexus and profit allocation rules for taxation.

Pillar Two, on the other hand, aims to stop the "race to the bottom" by establishing a global corporate minimum tax rate of 15%. This is a significant step towards ensuring that multinational enterprises (MNEs) contribute their fair share of taxes.

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The framework has also established specific thresholds for MNEs to be in scope. For Pillar One, MNEs with global revenue above EUR 20 billion and profitability above 10% are in scope. This threshold could be reduced to EUR 10 billion after seven years.

For Pillar Two, MNEs with global revenue above EUR 750 million are in scope. These thresholds will help ensure that only large MNEs are subject to the new rules.

Here is a summary of the in-scope thresholds for MNEs under the Two-Pillar Framework:

The OECD/G20 Inclusive Framework has made significant progress in promoting international cooperation and ensuring fair taxation.

The implementation of new rules is a complex process. Over 140 countries have signed the October 2021 agreement, but legislative bodies will need to take action to enact these new rules into domestic law.

In many jurisdictions, including all EU member states, work on implementing Pillar Two is already underway. A planned entry into force in 2024 is expected in most of these jurisdictions.

Pillar Two legislation has already been enacted in some jurisdictions. This is an important milestone, but it's essential to continue monitoring global developments to see which jurisdictions will stick to the timetable.