The Financial Times report that the OECD’s two-pillar agreement to re-allocate some taxing rights to market economies (Pillar One) and for a 15% global minimum tax (Pillar Two) has lost momentum should not come as a surprise to those who have been following developments.
As we have reported, while the support of the Biden administration helped to cement international agreement, progress in the US has been hampered by internal politics and the debate about what changes are necessary to the US’s version of a minimum tax on foreign earnings - the Global Intangible Low-Tax Income (GILTI) regime. Across the pond, progress on adopting the OECD’s Model Rules for a global minimum tax among EU countries is slowed by the need for unanimity. Poland’s agreement is yet to be secured, fuelled, in part, by Polish concerns that Pillars One and Two may no longer be a package deal. The UK, meanwhile, may be in a position to produce legislation in respect of the global minimum tax rules that will take effect from 1 April 2023 as early as this summer, (as it has indicated it plans to do) but whether the UK Government will now want to put the UK in the vanguard remains to be seen.
Nevertheless it would be wrong to be pessimistic. The OECD agreement represents a historic achievement. Implementing it at a slower pace will provide some further time to get the technical detail right, and may produce a better outcome in the long-run.