The Organization for Economic Cooperation and Development (OECD) announced earlier today that 136 countries reached agreement on the Inclusive Framework on Base Erosion and Profit Shifting. The two-pillar framework would ensure large multinational companies pay taxes in jurisdictions in which they have significant sales of goods and services and require participating countries to impose a minimum tax of 15% on companies with annual revenue above $867 million.
In a press release following the OECD announcement, Treasury Secretary Janet Yellen characterized the agreement as “a once-in-a-generation accomplishment for economic diplomacy.”
G-20 finance ministers are expected to endorse the deal later this month. Each participating country will then have to enact the agreement through domestic legislation—with full implementation targeted for 2023.
For the United States, the OECD timeline may prove difficult in a closely divided Congress, however. Lawmakers will have to approve the two pillars separately.
The Pillar 2 global minimum tax part of the framework is expected to be reflected in the pending reconciliation bill, which the Biden administration and congressional Democrats aim to complete this year.
The Pillar 1 regime, which will allow for the allocation of profits of certain large multinational companies based on the location of their sales of goods and services, is expected to be completed in 2022 in the form of a multilateral convention. Implementation of such an agreement in the United States may require ratification of the agreement, which requires the consent of two-thirds of the Senate, or 67 senators. In the current Congress, that would require at least 17 Republican senators to vote for final approval.
For questions or additional information, please contact a member of the Brownstein Tax Team.