As the world grows increasingly interconnected, the landscape of international taxation has sparked fervent debates. One key development is the Organisation for Economic Co-operation and Development (OECD)’s proposed changes to international tax rules. The agreement, reached in October 2021 by over 130 member jurisdictions, including Greece, which seeks to overhaul taxation for multinational corporations, shifting the taxation focus from where companies operate to where they have customers.

Greece, being a member of the OECD, was among the more than 130 countries that initially agreed on the blueprint of the new global tax rules in October 2021.

Historically, Greece has supported initiatives that ensure the fair allocation of taxing rights among countries and prevent tax evasion and profit-shifting by multinational corporations. They would likely view these reforms as a way to secure more tax revenue and level the playing field.

What are these reforms about?

The reform is based on two main “pillars”. Pillar, One aims to redefine where large multinational companies pay taxes, which could impact approximately $125 billion in profits globally. Meanwhile, Pillar Two introduces a global minimum tax, which could increase global tax revenues by an estimated $150 billion. Although implementation has been delayed due to disagreement over policy details, the plan suggests significant change in the international taxation landscape.

Under Pillar One, the “Amount A” regulation applies to companies with more than €20 billion in revenues and a profit margin above 10 percent. These companies would see a portion of their profits taxed in jurisdictions where they make sales. This would create a shift in tax revenue distribution, particularly impacting U.S. companies which make up a significant portion of such corporations. While this could lead to loss of tax revenue for the U.S., Treasury Secretary Janet Yellen has previously suggested that Amount A could be revenue neutral for the U.S., given increased revenue collection from foreign companies or U.S. companies selling to U.S. customers from abroad.

Pillar One also includes “Amount B”, a simpler method for companies to calculate taxes on foreign operations like marketing and distribution.

Pillar Two, meanwhile, institutes a global minimum tax of 15 percent, and is characterized by three primary rules and a fourth for tax treaties. These apply to companies with over €750 million in revenues. The Domestic Minimum Tax, Income Inclusion Rule, and Undertaxed Profits Rule all converge to establish a 15 percent minimum effective tax rate, applied to each jurisdiction where a company operates. The subject to tax rule in Pillar Two provides a framework for countries to tax payments that would otherwise face a lower tax rate.

These pillars signify a profound shift in international tax rules. The OECD outline stipulates that digital service taxes and similar policies should be phased out as part of Pillar One, leading to a need for new laws, tax treaty language, and the repeal of conflicting policies.

To date, the European Union has unanimously agreed to implement Pillar Two, with incorporation into each country’s national law slated for the end of 2023. However, the U.S. has yet to implement changes in line with this global tax agreement, leaving U.S. companies grappling with a complex web of minimum taxes.

The Pillar Two rules are expected to influence subsidies to businesses, since standard tax credits are less advantageous compared to government grants and refundable credits under the new system. It is a significant change for tax competition, with countries across the globe reassessing their tax policies for multinationals.

Nevertheless, the OECD’s two-pillar proposal remains a contentious issue. While Pillar One requires universal adoption to avoid disparate global approaches, Pillar Two’s optional adoption could lead to varying tax implementations across countries. If the implementation of Pillar One fails, there could be a resurgence of distortive European digital services taxes and

Therefore, the OECD’s ambitious bid to rewrite international tax laws is a complex process filled with both opportunities and challenges. The outcomes will significantly shape the future of global taxation and, by extension, the business strategies of multinational corporations. It is essential for companies and governments to remain vigilant as the implementation of these rules unfolds, preparing for the new tax landscape that lies ahead.

*Tony Anamourlis (CTA) (SSA) is a tax lawyer who contributes to various publications on issues of tax and estate planning.