Attention FAE Customers:
Please be aware that NASBA credits are awarded based on whether the events are webcast or in-person, as well as on the number of CPE credits.
Please check the event registration page to see if NASBA credits are being awarded for the programs you select.

Want to save this page for later?

Most Popular Content

OECD Continues Transition to Global Minimum Tax Compliance

S.J. Steinhardt
Published Date:
Mar 21, 2023


The Organization for Economic Cooperation and Development (OECD) continues to move ahead with its plans to implement the global corporate minimum tax to which it agreed in October 2021, Accounting Today reported.

The agreement, adopted by more than 130 countries, aims to reduce opportunities for tax avoidance by requiring companies headquartered within their borders to pay a minimum tax rate of at least 15 percent in each of the nations in which they operate.

Treasury Secretary Janet Yellen called for the tax in an April 2021 speech, and the United States played a large part in winning over the countries, but the proposed legislation codifying this into American law could not pass Congress.

Last week, the OECD held a public consultation meeting about compliance and the tax certainty aspects of the global minimum tax. In February, it released its technical guidance on the transition on the so-called Pillar Two framework, which “provides for a global minimum tax on the earnings of large multinational businesses, leveling the playing field for U.S. businesses and ending the race to the bottom in corporate income tax rates,” according to the U.S. Treasury Department. Pillar One applies to the ability of a country to tax profits from foreign companies that sell into their country but do not have a physical presence there.

"At last count, we have over 40 countries that are now building the pillars around the world," said Achim Pross, deputy director of the OECD Center for Tax Policy and Administration, told Accounting Today. 

The guidance addresses how certain jurisdictions may phase in implementation of the agreement. It includes a number of safe harbors on country-by-country reporting and forms of transition relief. The safe harbors and transition relief may result in companies in as many as 90 percent of the countries in which they operate during the transition period not having to make a full calculation of their effective tax rate.

Despite the transition relief and safe harbors, congressional Republicans still balk at imposing the minimum tax in the United States. Yellen faced questioning over the OECD minimum tax from lawmakers during oversight hearings this month on the tax provisions in President Joe Biden's budget plan.

"For the last two years, Treasury has used the OECD negotiations to attempt to compel changes in U.S. law without regard for the effect on U.S. revenue, U.S. companies and U.S. workers," Sen. Mike Crapo (R-Idaho), ranking member of the Senate Finance Committee, said in his opening statement at a hearing on Biden’s proposed budget last week. "Not only has the administration failed to put a stop to digital services taxes, but now foreign countries threaten to impose extraterritorial taxes on U.S. companies under the global minimum tax—at Treasury's invitation. The latest OECD guidance confirms the administration has agreed to allow foreign countries to collect U.S. GILTI [ global intangible low-taxed income] revenue, and worse, tax U.S. companies on their U.S. profits in violation of our tax treaties. The budget fails to consider these revenue impacts, which, if implemented, will result in billions of dollars of lost U.S. revenue."

GILTI is a category of income that is earned abroad by U.S.-controlled foreign corporations and is subject to special treatment under the U.S. tax code, according to Investopia.

At a hearing earlier in the month, Yellin argued before the House Ways and Means Committee that Pillar Two concedes no taxing rights, and is an international agreement whose main purpose is to stop other countries from functioning as tax havens, according to Accounting Today. She also defended her transparency about developments at the OECD, saying, "I have had many conversations with the chair and ranking member of this committee on ongoing developments whenever something new occurs during the negotiations."

The OECD framework also includes provisions to address taxing revenue from technology companies that sell across borders while establishing locations in lower-tax countries.

"This is creating a global tax code that allows us ultimately to move from a very traditional, brick and mortar type tax code into a digital code, really acknowledging the way that organizations and companies make money today and how they reach customers and ultimately how they grow their businesses," Marna Ricker, EY's global vice chair of tax, told Accounting Today. "It's a really important moment for that reason. We have a 100-year-old plus traditional tax code, and it needs to modernize to a digital economy."

Ricker added that “[w]e have the U.S. GILTI and the corporate alternative minimum tax. … The OECD would say they are not Pillar Two compliant. In that fact pattern, you're dealing with two regimes. You're dealing with the U.S. regime on GILTI and the corporate alternative minimum tax, and then you're dealing with what everybody else's regime looks like that's OECD compliant. It's a high level of complexity to navigate, and a lot of work and analysis to be done.”

“You're doing two tax corporate income tax calculations,” she said. “I don't necessarily see this resolving itself anytime soon. We've got really significant TCJA [Tax Cuts and Jobs Act of 2017] provisions that are expiring in 2025. That is when I would expect really significant U.S. tax legislation, the end of 2025. That is the point at which I think GILTI and corporate alternative minimum tax will need to be addressed because we have this cliff that comes in those expiring provisions.”