The Inclusive Framework has agreed (broadly) on the future framework under Pillars One and Two. Here is the official statement.
Of the 139 Inclusive Framework member countries, 130 signed up to this agreement.
Nigeria and Kenya are among the nine that did not sign up. Thus far, no reasons given for the decision of both countries not to join the seemingly happy consensus. The OECD has stated, however, that, broadly, non-signature does not necessarily imply non-agreement; some countries had not managed to obtain political sign-off back home, in time for the announcement. In such cases, the expectation is that those countries would later sign up. Perhaps that is the situation with Nigeria and Kenya? We shall see.
That aside, Ireland has made it clear that its own non-signature was actually down to non-agreement, specifically on the matter of the 15% rate for the proposed global minimum corporate tax rate. Apart from that significant point, Ireland broadly supports the proposals.
Even so, it’s not all harmonious singing from the 130 countries that did actually sign up. For instance, despite having signed the agreement, Switzerland has expressed “major reservations” with the agreement, even going as far as telling us that it is not alone in feeling this way. Switzerland states that it is offering “conditional” support, for the sake of moving the project forward.
Away from the Inclusive Framework members, and coming closer to Africa, ATAF is not exactly jumping for joy, either. As to Pillar One, the Inclusive Framework did not accept ATAF’s recent proposal for allocation to be based on a portion of MNE total profits, rather than on residual profits. ATAF was also not best pleased about the agreement on mandatory binding arbitration. And as for Pillar Two, ATAF had been looking for a global minimum tax rate of at least 20%. Even so, they can live with the agreed 15%, at least as a starting point.
On a wider note, though, what next for the two Pillars?
Do I still think Pillar One will go nowhere? Well, it is difficult to be pessimistic these days, especially now that the United States has climbed firmly onboard. However, I still see significant hurdles ahead.
For example, of the nine countries that held out on signing, three of them (Estonia, Hungary, and Ireland) are Member States of the European Union. Given that any future tax rules will have to be implemented in the EU via a Directive (therefore requiring unanimity among Member States), the hold-out of these three countries makes that process particularly troublesome. Also, there could be potential problems with Pillar Two and EU law, particularly given the jurisprudence of the Court of Justice of the European Union in the Cadbury Schweppes case.
I’m also thinking of Switzerland’s heavy hint that all is not harmonious behind the scenes, i.e. that there are other countries also harbouring major reservations. I have a sense of the whole thing being held together by fraying consensus. The coming months will reveal what we don’t now see.