Philip Smith, journalist

October last year saw possibly the most significant move yet in the ongoing attempt to level the global playing field for taxation. Amid much fanfare, the Organisation for Economic Cooperation and Development (OECD) announced a landmark deal setting a minimum 15% corporate tax rate for the world’s largest multinational companies together with the redistribution of tax rights over ‘super’ profits.

The OECD estimates that the agreement will see countries collect around US$150bn a year in new tax revenue and reallocate a further US$125bn of profits from around 100 of the largest, most profitable companies. The two pillars of the agreement (ie the tax rights redistribution and the minimum tax rate) were subsequently endorsed by the G20 group of economies.

With the agreement due to be implemented by 2023, the hard work really begins now, in 2022. As OECD secretary general Mathias Cormann says: ‘Agreement without implementation is de facto no agreement at all, so countries must move as quickly as possible to bring both pillars into effect.’

The two pillars

Pillar one of the agreement states that if a company has a global turnover of more than €20bn and a profit margin of more than 10%, then 25% of the profit in excess of 10% of revenue will be allocated to market jurisdictions using a revenue-based allocation key. A multilateral agreement will be developed and opened for signature in 2022 to implement the pillar, to be in force from 2023 onwards. This pillar will be reviewed seven years after implementation.

Pillar two sets a global minimum tax rate of at least 15%. It will apply only to companies with a global turnover of more than €750m. The minimum tax will work as a ‘top-up’ tax that can be charged in the country where the multinational company is resident for tax purposes. So, if a company pays 2% corporate income tax in a foreign jurisdiction (such as a ‘source’ country where they have operations or a tax haven that they are shifting profits through), then the tax-residency jurisdiction has the right to levy a 13% tax on its profits (15%-2%=13%). This gives additional taxation rights to the country where a company is headquartered, not where they do business.

Model rules

The first step towards implementation came just as 2021 was drawing to a close, with the release of a template for implementing the 15% tax rate in the form of global rules to prevent the erosion of national tax bases. The rules are designed to:

  • provide a co-ordinated system that defines which multinational companies fall within the scope of the minimum tax
  • offer a mechanism for calculating the effective tax rate on a jurisdictional basis and for determining the amount of top-up tax payable
  • impose the top-up tax on a member of a multinational in accordance with an agreed rule order.

The rules also address the treatment of acquisitions and disposals of group members, with specific rules addressing particular holding structures and tax-neutrality regimes. Finally, they cover the administrative aspects, including information-filing requirements, and provide for transitional rules for multinationals that become subject to the global minimum tax.

‘The deal fails to stop corporate tax avoidance and harmful tax competition between countries’


However, not all countries are onboard with the agreement. While it is now supported by an overwhelming majority of jurisdictions that participated in the G20/OECD base erosion and profit-shifting (BEPS) project, four countries – Kenya, Nigeria, Pakistan and Sri Lanka – did not sign up.

Tove Maria Ryding, tax coordinator at the European Network on Debt and Development (Eurodad), is unequivocal about her disappointment with the outcome of several years’ worth of negotiations. ‘The OECD has produced a deal that has strong biases towards the interests of larger and richer countries, at the expense of the world’s poorest countries,’ she says. ‘At the same time, the deal fails to stop corporate tax avoidance and harmful tax competition between countries. The deal is bad for everyone, but worse for developing countries.’

Other are taking a more pragmatic approach, echoing ACCA’s head of tax Jason Piper, who says that any deal has to be a welcome development even if it is not perfect.


The African Tax Administration Forum (ATAF) recognises the complexity and difficulty faced by negotiators, calling the agreement ‘a two-pillar set of rules that represent the most significant changes to the international tax rules in the last 100 years’.

ATAF and African members of the BEPS project were heavily involved in the negotiations that delivered an agreement. ATAF is now providing technical support to its members to try and ensure the new rules are ‘simple, equitable and bridge the gap in the existing tax rules that have been skewed in favour of developed countries’. The organisation will also advise those countries, particularly Nigeria and Kenya, that have not signed the agreement.

Nigeria’s reluctance to join the deal is backed by ActionAid Nigeria, which warns that the global minimum tax rate of 15% could lead to the risk of a ‘race to the bottom’, to the detriment of countries that rely on a significantly higher rate.

‘Nigeria set up rules and regulations with the corporate tax at 30% for big and multinational companies,’ ActionAid Nigeria says. ‘The average corporate tax rate for African countries is 28%. However, the 15% minimum corporate rate is too low and therefore inadequate to stop the race to the bottom. The benefits of a proposed minimum tax will be far below what is expected to fund the budget deficit in Nigeria, which will translate to the country’s inability to meet up with the fight against poverty and unemployment.’

Further information

See the full text of the OECD’s model rules, along with an overview, FAQs and factsheets on the application of the rules

Read a rundown of the issues arising from the digital transformation and globalisation of national economies, and the OECD’s two-pillar solution for addressing the tax challenges