Implementation Of Historic Global Tax Deal Faces Challenges

Last fall, the OECD brokered a global tax framework signed by 137 countries to reform international tax rules and ensure multinationals pay their fair share in taxes. The deal includes two parts: a reallocation of taxing rights, known as Pillar One, which would require simultaneous changes to global tax treaties, and a global minimum tax rate of 15%, known as Pillar Two. The biggest firms would be required to pay more in taxes where they operate rather than where they are based, i.e., usually where taxes are more favorable.

However, turning this political agreement into legally binding commitments is not easy. Despite being a main proponent of the deal, the U.S. has struggled to pass the required legislation at home. If the U.S. or any other major economy fails to ratify either part of the agreement, not only could the entire deal fail, but it could also lead to a transatlantic tax war.

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The OECD wants the deal in place by 2023. But considering that it took over eight years to negotiate, and that previous reforms have taken on average two years, the roadmap for implementation is far from certain.