Pillar two: setting the web

Nations behind 90% of world GDP are co-ordinating laws on a minimum global tax rate to catch out multinationals. CPA and writer Peter Chan investigates the implications across Asia

For years, there has been growing concern that globalisation has allowed multinational enterprises to legitimately reduce their overall tax liability. This has been occurring in ways that would not have been possible prior to globalisation, with multinationals now taking advantage of low-taxed jurisdictions and mismatches in tax rules. The old international tax model is struggling to adapt to the world of e-commerce, in which goods and services can be provided to clients without any physical presence in the recipient country.

To address the concerns of domestic tax base erosion and profit shifting (BEPS) posed by the global economy’s digitalisation, the Organisation for Economic Cooperation and Development (OECD) issued a framework for international tax reform on 1 July 2021. Known as BEPS 2.0, it intends to achieve a more equitable distribution of taxation rights over the revenues of large multinationals, and to establish a global minimum tax rate.

BEPS 2.0 has attracted about 140 member jurisdictions of the OECD/G20 Inclusive Framework on BEPS. Together, they represent more than 90% of global GDP. The organisation currently intends to finalise the technical aspects of the BEPS 2.0 package, with the package coming into effect in 2023.

BEPS 2.0 is the first significant renovation of international tax rules in quite a while and is predicted to have far-reaching consequences for many tax-friendly countries and multinationals. The BEPS 2.0 package consists of two parts, also called the two pillars.