Brussels, 21 December 2021
Digital Taxation – Delivering a successful implementation of the global agreement for Governments and Businesses
In October 2021, political agreement was reached by 136 members of the G20/OECD Inclusive Framework on a two-pillar approach to revise the international tax rules for large multinational enterprises.
Under Pillar One of the agreement, taxing rights over 25% of residual profits of large enterprises would be re-allocated to market jurisdictions (i.e where the customers and users of those businesses are located). For these purposes, large enterprises are those with revenues in excess of Euro 20bn and residual profits are those in excess of a 10% margin.
Pillar Two provides a global minimum effective tax rate of 15% on all businesses with global annual revenues over Euro 750m. There is an ambitious plan that envisages implementation of the new rules by 2023.
The debate surrounding taxation of the digitalizing economy has been on-going for many years. Recently, a number of countries in the EU and elsewhere have enacted and implemented unilateral Digital Services Taxes “DSTs” (or similar provisions), which impose a flat percentage tax on gross revenues from certain digital activities. As part of its “own resources” the European Commission has suggested an EU wide digital levy.
The G20/OECD Inclusive Framework Agreement includes the removal and standstill of Digital Services Taxes (or similar unilateral measures) with a view to bring an end to trade tensions resulting from instability of the tax system.
For more information, please contact: Patrice Chazerand, Director for Digital Trade & Taxation Policy