OECD/G20 Inclusive Framework Unveils Groundbreaking Multilateral Convention Addressing Global Tax Challenges

October 17, 20230

In a significant step towards modernizing international tax policy, the OECD/G20 Inclusive Framework has unveiled a pioneering multilateral convention that promises to revolutionize the global tax landscape. This monumental development, known as the Multilateral Convention to Implement Amount A of Pillar One (MLC), marks a significant leap forward in addressing the taxation challenges stemming from the digitalization and globalization of the economy. Designed to reallocate taxing rights to market jurisdictions, enhance tax certainty, and eliminate digital service taxes, the MLC is set to reshape the international tax system as we know it. 


The MLC represents the culmination of consensus among Inclusive Framework members and reaffirms the commitment to coherently redistribute taxing rights concerning a portion of the profits of the world’s largest and most profitable multinational enterprises (MNEs) in market jurisdictions, irrespective of their physical presence. This paradigm shift will not only ensure the abolition and prevention of digital services taxes but also secure mechanisms to prevent double taxation, incentivizing the stability and predictability in the international tax ecosystem. 


This landmark release signifies substantial progress in actualizing the October 2021 agreement, propelling international tax policy firmly into the digital age. It is worth noting that while the MLC reflects consensus, some minor differences have been flagged in footnotes by a select few jurisdictions, reflecting their constructive engagement in resolving these discrepancies. 


The MLC is now poised to be presented to G20 Finance Ministers and Central Bank Governors in a new OECD Secretary-General Tax Report during their upcoming meeting in Morocco. OECD Secretary-General Mathias Cormann emphasizes the global cooperation to resolve the technical aspects of this momentous agreement and lauds the MLC as a fundamental reform to the international tax system, enabling governments to move forward with the steps necessary to secure its signature and ratification. Moreover, there is a concerted effort to provide enhanced support to developing countries, ensuring that the international tax system becomes more equitable and effective in the digitalized world. 


Complementing the MLC, an Explanatory Statement and the Understanding on the Application of Certainty of Amount A are included, outlining a coordinated taxation system and delineating the essential features for signature readiness, encompassing scope and operation. Notably, the MLC incorporates several provisions tailored to address the distinctive circumstances of developing Inclusive Framework members. 


Under Pillar One, an estimated USD 200 billion in profits is expected to be reallocated to market jurisdictions annually. This redistribution is anticipated to generate global tax revenue increases ranging from USD 17 to 32 billion, based on 2021 data. Of significance, low and middle-income countries are projected to be the primary beneficiaries, receiving a substantial portion of existing corporate income tax revenues. Swift and widespread implementation of these reforms is thus of paramount importance. 


In parallel, the Inclusive Framework is making significant headway on Pillar Two. The multilateral instrument to implement the Subject to Tax Rule (STTR) has opened for signature, nearing the final stages of its development. The STTR is a treaty-based rule that enables developing countries to “tax back” when specific intra-group payments are subject to nominal corporate income tax rates below 9%. 


Furthermore, Pillar Two introduces model rules for a global minimum tax, which countries can incorporate into their domestic legislation. This global minimum tax will ensure that large MNEs are subject to an effective tax rate of 15% on their profits in every jurisdiction where they operate, thereby generating an estimated additional annual revenue of up to USD 200 billion. To assist governments in considering the implementation of the global minimum tax under Pillar Two, a new Minimum Tax Implementation Handbook has been unveiled, providing a comprehensive overview of the key provisions and considerations for tax policy and administration officials, as well as other stakeholders. 


The release of the MLC, alongside progress on Pillar Two, signifies a transformative moment in the realm of international taxation. As the global community works collaboratively to resolve the technical intricacies behind these groundbreaking agreements, it is evident that the international tax system is set to become fairer and more effective in the digitalized world. This important development holds profound implications for tax professionals, investors, and those interested in staying updated on the latest tax news. It also presents an unprecedented opportunity for potential clients to leverage tax technology and transfer pricing services in this evolving landscape. 


To keep updated on news, visit our Global News Page.

Don’t miss our most recent updates and articles; follow us on LinkedIn.



Leave a Reply

Your email address will not be published. Required fields are marked *

TPA Global

H.J.E Wenckebachweg 210
1096 AS Amsterdam