▪ The globalization and digitalization of the world economy have fueled an international issue whereby multinational enterprises (MNEs) earn significant incomes without paying corporate income taxes in market jurisdictions.
▪ International discussions coordinated by the OECD have resulted in the preparation of a plan for the digital economy to reallocate taxing rights to jurisdictions where MNEs have a substantial economic rather than physical presence.
▪ The OECD/G20 Inclusive Framework on BEPS (IF) agreed on the October 2021 Statement regarding a two-pillar solution. This report examines the Statement's consensus-building process, its main content, implementation plans, and future challenges.
▪ Discussions on taxation in the digital economy began in 2015 as a followup to the OECD/G20 BEPS Action 1 Report.
▪ After four years of multilateral consultations on international tax reform in the digital economy, the IF agreed on a two-pillar solution in October 2021.
▪ The Statement on a two-pillar solution includes the reallocation of taxing rights to market jurisdictions and a global minimum tax.
▪ Pillar One: Reallocation of taxing rights to market jurisdictions
▪ Pillar Two: Global minimum tax rate of 15%
▪ International taxation in the digital economy will be introduced in 2023 after discussing the technical details by early 2022, amending domestic laws and ratifying the multilateral agreement in 2022.
▪ Although the consensus was built around discussions on the taxation in the digital economy, which newly established the international taxation principle, the specific design of the system remains to be determined.