Balancing on two pillars: Global corporate tax reform

Summary:

The landscape of international corporate taxation is evolving rapidly, shaping the future of economic policy and global business operations. On 8 October 2021, nearly 140 countries from around the world rallied behind a historic overhaul of international corporate tax rules, marking a significant milestone in tax reform. The agreement reflects a collective effort to modernise taxation for the digital era and mitigate global tax competition through a 'two pillar' solution. Under Pillar One, the allocation of taxing rights on corporate profits between countries is being transformed, while Pillar Two establishes a minimum corporate tax floor of 15 % for multinational companies.

Over the years, both tax authorities and businesses have sought to achieve effective and coordinated implementation of these rules. Both pillars should generate additional tax revenue for EU Member States and further ensure a fair level playing field between companies. While Pillar Two is already enforced across the EU (and in a number of third countries), challenges persist regarding the implementation of Pillar One, in particular owing to the uncertain support by the United States (US). A breakdown of Pillar One (or the wider reform) may possibly lead to a return of unilateral digital taxes, and heightened trade tensions between the EU and the US.

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