International Tax Reform the C-Suite Can't Ignore

For decades, nations competed to attract businesses with tax breaks. A new agreement among OECD countries is about to change that

- Danielle Rolfes, Dan Prud’homme, and Vinod Kalloe

By the end of this year, the global tax system will experience a historic shift that will have implications for multinational enterprises (MNEs) that go far beyond their tax departments. The upcoming regulatory changes will impose significant compliance burdens on MNEs and should prompt C-suites to reconsider whether their global operating models remain fit for purpose.

For decades, countries have competed intensely to attract MNEs’ operations by cutting their corporate tax rates and narrowing their tax base. But this competition is about to change significantly, now that 138 jurisdictions, representing nearly 95% of the global gross domestic product, have reached an agreement to put a floor on global tax competition. The agreement — part of an initiative led by G-20 countries and the Organization for Economic Cooperation and Development (OECD) — requires that all large MNEs be subject to a minimum tax of 15% in each foreign country in which they operate. Key jurisdictions, including all members of the European Union, are expected to apply the new rules in 2024.

A Brief History of Global Corporate Taxation 

The new tax agreement represents a watershed moment for global business regulation. Consider that the average corporate income tax rate among OECD countries was 47% in 1980, and had declined to 23% in 2021, in what various policy experts referred to as either a “race to the bottom,” or the result of healthy competition.