OECD sees revenue gains from new tax pact reaching $250bn

PARIS: New cross-border corporate tax rules could yield about a quarter of a trillion dollars in extra revenue for governments, more than previously expected, the Organisation for Economic Cooperation and Development estimated on Wednesday.

Nearly 140 countries are preparing to implement next year a 2021 deal on government’s rights to tax multinationals in order to take account of the emergence of big digital companies such as Apple and Amazon, which can book profits in low-tax countries.

The first pillar of the two-track reform aims to re-allocate 25% of profits from the world’s largest multinationals for taxation in the countries where their clients are, regardless of the companies’ physical location.

The second pillar aims to set a global minimum corporate tax rate of 15% by allowing governments to apply a top-up tax to that level on any profits booked in a country with a lower rate. The OECD estimated that the minimum tax would yield $220 billion, or 9% of global corporate income tax - up from a previous estimate of $150 billion.

Meanwhile, the re-allocation of taxing rights under the first pillar of the reform was now expected to cover $200 billion in multinationals’ profits, up from $125 billion previously.

The increase was mainly due to higher multinational profits now than a couple of years ago, with 50% coming from large digital groups, the OECD said.

As a result of more profit being covered, the second pillar was now seen generating tax gains of between $13 billion and $36 billion.

While developing countries have criticised the reform over concerns that they could lose out, the OECD’s updated analysis found that low- and middle-income countries would gain the most from the re-allocation of taxing rights.

At the same time, low-tax investment hubs where multinationals have booked their profits until now would end up surrendering more taxing rights than they are allocated, the OECD said.