• Context: The OECD/G20, with the overall agreement of all Member jurisdictions of the Inclusive Framework (IF), has reached an agreement among the Member jurisdictions on a ‘two-pillar’ solution to the BEPS 2.0 project, namely, pillar one (reintroduction of taxing rights and global minimum taxation) to address issues arising from digitalisation.

Background

• An inclusive framework on BEPS is finalizing negotiations on Pillar One, while the Global Minimum Tax under Pillar Two is being implemented in countries globally.

Important Points

• What is an Inclusive Framework?
• The OECD/G20 Inclusive Framework on BEPS, which includes 147 countries and jurisdictions such as India, combats tax avoidance and promotes fair tax practices through a Two-pillar approach.
• Pillar One of the framework reallocates profits of large multinational enterprises (MNEs), while Pillar Two establishes a Global Minimum Corporate Tax of 15%.
• This framework ensures fairness in tax systems, addresses tax avoidance, and adapts to evolving business models and digital economies.

What is BEPS?

• It refers to corporate tax planning strategies used by multinationals to shift profits from higher-tax jurisdictions to lower or no-tax jurisdictions.
• The OECD defines BEPS strategies as exploiting gaps and mismatches in tax rules. It erodes the tax base (costing countries USD 100-240 billion in lost revenue annually) of the higher-tax jurisdictions.
• As developing countries have a higher reliance on corporate income tax, they suffer from BEPS disproportionately.
• Working together within the OECD/G20 Inclusive Framework on BEPS, over 135 countries and jurisdictions are collaborating on –
  • The implementation of measures to tackle tax avoidance,
  • Improving the coherence of international tax rules and
  • Ensuring a more transparent tax environment.
• The objective of the Outcome Statement: It delivered a package to further implement the Two‐Pillar Solution to Address the Tax Challenges Arising from the Digitalisation of the Economy.
• Two‐Pillar Solution/ Global Anti-Base Erosion (GloBE) rules: These rules were agreed upon in 2021 by 137 countries and jurisdictions under the OECD/G20 Inclusive Framework on BEPS.

Important Fact for Exam

Organisation for Economic Co-operation and Development

• Established: 1948
• Headquarters: Paris, France
• Secretaries-General: Mathias Cormann
• Membershi: 38 countries
• Official languages: English, French