Executive Summary 

• The Organisation for Economic Co-operation and Development (OECD) has proposed an international tax agreement consisting of two pillars, aimed at taxing digital companies and preventing double taxation. 
• The United Nations (UN) has proposed a potentially legally binding international tax code that rivals the OECD tax code. 
• The implementation of one or both tax regulations will affect international business in the future, with some possible positive and negative effects. 

Introduction 

The Orginisation for Economic Co-operation and Development (OECD) has proposed and revised an international tax agreement that contains two pillars. Pillar one aims to reallocate taxation of digital multinational companies and multinational companies with intangible assets. Pillar two aims to impose a minimum global tax on multi-national companies, while preventing double taxation. The United Nations (UN) has proposed a similar international tax bill but claims to have more emphasis on an allocation of taxation that will aid developing countries. The UN Committee of Experts on International Cooperation in Tax Matters (CEICTM) and the UN Economic and Social Counsel (ECOSOC) have worked together to propose this bill. The implementation and effectiveness of either or both international tax regulations may change how international business is conducted in the future. 

The OECD Tax Proposal 

In October 2021, the OECD and the G20 proposed an international tax agreement consisting of two pillars, known as the Two Pillar Solution. The first pillar aims to address taxation of multinational digital companies. If implemented, it would allow jurisdictions (countries) to tax multinational digital companies even if the company has no physical operation in that jurisdiction. Jurisdictions may tax the multinational company based on Amount A, which is calculated based on residuals profits after a profit allotment of 10% of revenue. The multinational company also must make over 20 billion euros and make at least one million euros to be subject to the tax. There are also adjustments to avoid double taxation, the burden of which falls on jurisdictions based on a ranking of the return on depreciation and payroll from highest to lowest. This aims to provide a consistent tax system for multinational companies with non-tangible assets. 

Pillar two proposes a set minimum global corporate tax of 15%. This can be applied to multinational companies which earn 750 million euros or more. The OECD plans to have all countries implement this 15% corporate tax. However, if a multinational company that earns over 750 million euros is headquartered in country A, which has not implemented pillar two, and taxes the company under the 15%, but has operations in country B, which implemented pillar two, country B can tax the difference between country A’s tax and the 15%. Pillar two aims to address profit shifting. 

By July 2023, 138 countries agreed to an Outcome Statement, which addressed the last nuances of the proposed tax code. Pillar one is expected to go into effect in 2025, with the UN hoping that pillar two will be implemented on a similar time frame. Both pillars’ effectiveness will depend on international agreement in implementation. 

The UN Tax Proposal 

The UN Committee of Experts on International Cooperation in Tax Matters (CEICTM) and the UN Economic and Social Counsel (ECOSOC) have worked together to propose an alternative to the OECD tax proposal. Since 2013, the UN has been holding a yearly discussion on international tax cooperation. The CEICTM was created to maintain dialogue on international tax cooperation and advise developing countries on taxes. The UN emphasizes that the OECD’s proposal favors developed countries and is ignoring developing countries both in the discussion of international tax and in the implementation of international tax. 

Although the UN has provided advice to developing countries and recommended tax policies, they have never tried to create or enforce an international tax framework. This is a step towards a more involved, controlling, and powerful UN. By creating and enforcing international tax policy, the UN enters a space where they have a heavy influence on international business. 

In 2015, the UN released a report detailing options on how the organization could become more involved in international taxation. By August 2023, the UN had three possibilities of international tax cooperation as they move forward. The first option is a legally binding agreement that would allow countries to tax multinational companies. The second option is a legally binding agreement that would slowly phase in new international taxation policies. The third option is a non-legally binding consensus, facilitated by the UN, among countries. The third option allows for bilateral or regional agreements, rather than international ones. Some countries, including Turkey, the Republic of Korea, and Switzerland spoke out against the legally binding proposals. 

In November 2023, the Nigeria revised draft resolution of Promotion of Inclusive and Effective International Tax Cooperation at the United Nations was passed. This emphasized the need to provide international tax cooperation that aided developing countries. It also stated that the conversation around this implementation should be “adapt and implement them in accordance with [each country’s] needs and preferences” but acknowledged that there should be a legal basis for this implementation must be established.  

The Future of International Taxation 

Although the full details of the UN’s eventual tax proposal have not been worked out, they heavily emphasize the welfare of developing countries and the possibility of a legal framework. After years of providing international taxation recommendations, aiding developing countries with tax policies, and making international taxation more of a priority, the UN is taking concrete steps to start developing this framework.  

The OECD and G20 have placed more of an emphasis on preventing profit shifting, rather than aiding developing countries. Their tax proposals are more developed and set to be implemented (at least partially and at least in many jurisdictions) next year. This will most likely cause backlash from multinational companies with non-physical assets. 

Both organizations face an uphill battle as they try to reach consensus about these tax policies. The structures of both the OECD and the UN rely on agreement between the countries that participate in them. Not only will both organizations need to propose an acceptable tax law, but they will also need consensus on how it will be enforced. If too few countries agree to either or both of the proposals, implementation will be difficult and ineffective.  

The priorities of these two proposals are very different and depending on the UN’s ability to continue with this project, there is a possibility of both being implemented. This would create two international tax regulations that multinational companies would have to navigate in the coming years. If implemented effectively, these regulations may have a positive effect on developing countries but will also increase the cost of international business and trade. 

Either tax proposal could also fail to be implemented. The OECD’s tax depends on the willingness of countries to enforce and take advantage of it. The UN’s tax will require consensus on the specifics of the document, which may never be reached. Regardless, it is clear that world organizations are looking to find a way to implement international tax regulations. Whether their emphasis is on aiding developing countries, taxing digital multinational companies, or preventing profit shifting, the conclusion of these organizations is uniform international tax regulations. This proposes a new look forward at a world of international tax cooperation and a curiosity about the effectiveness of such proposals if implemented. 

These proposals represent a new era in the global economy, as non-government entities attempt to create and enforce policies. The implementation (or lack thereof) of such policies depends on the rule of the majority, which can be a dangerous structure. Inevitably, some countries will disagree with the proposals. It is very difficult (if even feasible) to create an international taxation structure that will benefit all the nations of the world. With different ways of doing business in different regions of the world, a regional or bilateral approach to taxation, formed from the consensus of countries in proximity with each other, is a more logical step. 

Conclusion 

Both the OECD and the UN, through the CEICTM and ECOSOC, are working on creating international tax regulation. The OECD is much further ahead in this process, with a full two pillar system for international taxation written and set to begin implementation starting in 2025. The first pillar addresses the taxation of digital companies that earn money in countries that they do not physically operate in. The second pillar addresses profit shifting through a global minimum corporate tax.  

The UN claims that the OECD pillar system ignores and will be harmful to developing countries. Their three possible proposals, which include two legally binding and one non-legally binding option, attempt to include developing countries in the conversation and implementation of these international taxes. The UN is much early in the process of writing its international tax regulation than the OECD is, so the effectiveness and implementation will depend on their ability to create regulation and find consensus throughout the continued talks surrounding international taxation. 

If either or both are implemented, the future of international trade may be altered. There may be some positive effects on developing countries as they increase their tax participation, but international trade and business will get more expensive. The agreement between countries on either of these taxes, and their ability to effectively implement them will determine the future of multinational companies and international business.