On the heels of the July political agreement by members of the Inclusive Framework to fundamentally reform international tax rules, reports have it that a few moments ago, a total of 136 countries and jurisdictions reached an international tax agreement to reform taxation to reflect a digital economy.

These countries representing more than 90% of global GDP under the aegis of the OECD/G20 Inclusive Framework excluding Nigeria, Kenya,  Pakistan, and Sri Lanka will now reassign more than $125 billion of profits across 100 of the world’s largest Multinational Enterprises, MNEs with the guiding principle that taxes generated by these firms should be equitably distributed.

New entrants and the undecided

The political arrangement reached in July only featured 132 countries but just before this grand agreement, Estonia, Hungary, and Ireland had successfully joined the fray, making it an agreement supported by all OECD and G20 countries except for Nigeria, Kenya, Pakistan, and Sri Lanka.

Today’s agreement at the OECD amongst others will subject Multinational Enterprises (MNEs) to a minimum 15% tax rate from 2023.

Kernel of the agreement

The agreement set to reform the administration of the international tax regime hinges on a two-pillar solution. This solution will see to a fairer distribution of resources with top economies playing a big brother role to less viable economies.

See the implication of each of these pillars as captured by the meeting’s communique,

Under Pillar One, taxing rights on more than USD 125 billion of profit are expected to be reallocated to market jurisdictions each year. Developing country revenue gains are expected to be greater than those in more advanced economies, as a proportion of existing revenues. Pillar One will ensure a fairer distribution of profits and taxing rights among countries concerning the largest and most profitable multinational enterprises. It will re-allocate some taxing rights over MNEs from their home countries to the markets where they have business activities and earn profits, regardless of whether firms have a physical presence there.

Pillar Two introduces a global minimum corporate tax rate set at 15%.  The new minimum tax rate will apply to companies with revenue above EUR 750 million and is estimated to generate around USD 150 billion in additional global tax revenues annually. Further benefits will also arise from the stabilization of the international tax system and the increased tax certainty for taxpayers and tax administrations.

OECD Secretary-General; Mathias Cormann has the following to say,

Today’s agreement will make our international tax arrangements fairer and work better,” said “This is a major victory for effective and balanced multilateralism. It is a far-reaching agreement that ensures our international tax system is fit for its purpose in a digitalized and globalized world economy. We must now work swiftly and diligently to ensure the effective implementation of this major reform,.  

Countries are aiming to sign a multilateral convention during 2022, with effective implementation in 2023. The convention is already under development and will be the vehicle for implementation of the newly agreed taxing right under Pillar One, as well as for the standstill and removal provisions about all existing Digital Service Taxes and other similar relevant unilateral measures. This will bring more certainty and help ease trade tensions. The OECD will develop model rules for bringing Pillar Two into domestic legislation during 2022, to be effective in 2023.

Mathias Cormann

What you should know

  • The introduction of a minimum tax agreement as captured by the deal will not eliminate tax competition, but puts multilaterally agreed limitations on it, and will see countries collect around $150 billion in new revenues annually.
  • In an actual sense, multinational enterprises considered to be big players with global sales above EUR 20 billion and profitability above 10% will be covered by the new rules, with 25% of the profit above the 10% threshold to be reallocated to market jurisdictions.

  • This novel agreement after many years of deliberations will now be handed over to the G20 Finance Ministers meeting slated for Monday, October 13, 2021, in Washington D.C. after which, it will be transmitted to the G20 Leaders Summit in Rome at the end of the month.

  • Developing countries, as members of the Inclusive Framework on an equal footing, have played key roles in birthing the agreement.


If Nigeria as planned by the Finance Act of 2020 will successfully tax especially global tech giants, then there is a need for her to embrace the probability of a global partnership of this magnitude.

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