G20 Finance Ministers affirm commitment to BEPS 2.0 and enhanced global tax cooperation

Executive Summary

On 25-26 July 2024, G20 Finance Ministers and Central Bank Governors met in Rio de Janeiro, Brazil. The meeting concluded with a communiqué (pdf) that reaffirms the G20 Finance Ministers' commitment to the October 2021 statement of the OECD/G20 Inclusive Framework on the Base Erosion and Profit Shifting (BEPS) 2.0 project and to swift implementation by all interested jurisdictions, commending the progress on implementation of Pillar Two and the ongoing work on ensuring coordination among countries implementing the Global Anti-Base Erosion Rules as a "resounding success of international taxation cooperation."

The G20 Finance Ministers also agreed on a stand-alone Tax Declaration (pdf), which lays out their commitments on a wide range of international tax cooperation matters. The Declaration expresses the commitment to finalizing all components of the Pillar One agreement expeditiously with a view to signing the Multilateral Convention as soon as possible. It also indicates the intent to engage cooperatively on effective taxation of ultra-high-net-worth individuals in the G20 and in other forums. In addition, the Declaration highlights the benefits of work on tax transparency and strengthening technical assistance and notes the expectation that United Nations (UN) member countries will engage in the ongoing discussion of strengthening international tax cooperation in good faith.

In advance of the meeting, the OECD released the OECD Secretary-General's Tax Report to the G20 Finance Ministers and Central Bank Governors (the Secretary-General Report). This report provides an update on activities with respect to the G20's international tax agenda, including ongoing work on the BEPS 2.0 project, tax transparency, and tax and climate change.

At the request of the Brazilian G20 Presidency, the OECD also released four reports on specific topics: (i) Taxation and Inequality; (ii) Strengthening International Tax Transparency on Real Estate — From Concept to Reality; (iii) Bringing Tax Transparency to Crypto-Assets — An Update, and (iv) Beneficial Ownership and Tax Transparency — Implementation and Remaining Challenges.

Detailed discussion

G20 communiqué

A communiqué on the discussions during the 25-26 July G20 Finance Ministers and Central Bank Governors meeting was released at the conclusion of the meeting. The communiqué reflects the G20's continued focus on both pillars of the BEPS 2.0 project, stating:

32. We welcome the progress made on the Two-Pillar Solution under the OECD/G20 Inclusive Framework on BEPS and reiterate our commitment to the October 2021 Statement of the Inclusive Framework and to the swift implementation of the two-pillar solution by all interested jurisdictions. We also welcome the continued significant progress made towards the implementation of Pillar Two and will continue to support ongoing works to ensure coordination among countries implementing the Global Anti-Base Erosion Rules as a common approach. This should be regarded as a resounding success of international taxation cooperation. We encourage Inclusive Framework members to expeditiously complete the negotiations on a final package on Pillar One through resolving the remaining issues on a framework for Amount B, allowing the Multilateral Convention (MLC) to be finalized and opened for signing as soon as possible.

The communiqué also reflects broader G20 interest in international tax cooperation, explaining:

33. We continue to work together towards a fairer, more stable and efficient international tax system fit for the 21st century. In this context, we have issued The Rio de Janeiro G20 Ministerial Declaration on International Tax Cooperation, restating our commitment to tax transparency and fostering dialogue on fair and progressive taxation, including of ultra-high-net-worth individuals, among other topics. Our international tax cooperation should maximize synergies among the existing international fora … We encourage constructive discussions at the UN Ad Hoc Committee to Draft Terms of Reference for a United Nations Framework Convention on International Taxation Cooperation.

The communiqué also notes three tax-related documents commissioned by the Brazilian G20 Presidency: (i) the International Monetary Fund's G20 Note on Alternative Options for Revenue Mobilization; (ii) the Blueprint for a Coordinated Minimum Effective Taxation Standard for Ultra-High-Net Worth Individuals; (iii) and the OECD Report to G20 Finance Ministers and Central Bank Governors on Taxation and Inequality.

G20 Ministerial Declaration on International Tax Cooperation

The G20 Finance Ministers also released a stand-alone Tax Declaration on international tax cooperation. The Declaration applauds domestic tax reforms by several G20 countries to tackle inequalities and promote fairer and more progressive taxation systems. It includes a vow to strengthen domestic reforms through peer support and the sharing of best practices.

The Declaration calls for the swift implementation of the Crypto-Asset Reporting Framework (CARF) and revisions to the Common Reporting Standard (CRS) by jurisdictions. It notes the role of the Global Forum on Transparency and Exchange of Tax Information for Tax Purposes in ensuring broad adoption of these frameworks. Additionally, it invites the OECD to continue exploring the exchange of information on real estate taxation on a voluntary basis.

The Declaration states the intention "to engage cooperatively to ensure that ultra-high-net-worth individuals are effectively taxed," which could involve exchanging best practices, encouraging debates around tax principles and developing anti-avoidance measures. It references continuing discussions in the G20 and other forums, supported by technical input from international bodies, academia and experts, and also encourages the Inclusive Framework on BEPS to consider working on these issues.

The Declaration also notes the ongoing debates within the UN Ad Hoc Committee regarding international tax cooperation and stresses the importance of (i) supporting a stable, inclusive and effective international tax system through broad consensus, (ii) prioritizing issues that are likely to reach consensus and can be effectively implemented, and (iii) focusing on domestic revenue mobilization and capacity building in tax matters for countries in need.

Finally, the Declaration recognizes the critical role of technical assistance, calling for strengthened capacity-building frameworks and the promotion of progressive tax systems to reduce inequalities and promote economic growth. It also notes the intention to continue to provide bilateral support to enhance domestic resource mobilization to countries in need, including through initiatives like Tax Inspectors Without Borders.

July 2024 OECD Secretary-General Report

The Secretary-General Report provides an update on the ongoing work on Pillars One and Two, indicating that approximately 40 jurisdictions have already implemented or are planning to implement Pillar Two effective from January 2024 or 2025. The Report projects that 60% of large multilateral enterprises (MNEs) will fall within the scope of the global minimum tax by the end of 2024 and 90% will be in-scope by 2025.

The Secretary-General Report further highlights progress on the Subject-to-Tax Rule (STTR) component of Pillar Two, noting that a high-level signing ceremony for the STTR MLC scheduled on 19 September 2024 in Paris. The STTR MLC will enable more than 70 developing country members of the Inclusive Framework to request the inclusion of the STTR in their treaties with member jurisdictions that have corporate income tax rates below 9% on covered payments, potentially impacting more than 1,000 treaties.

The Secretary-General Report indicates that members of the Inclusive Framework on BEPS have secured near full consensus on the MLC to implement Amount A under Pillar One and are working to resolve remaining gaps on a framework for Amount B. According to the Report, a list of countries applying Amount B is expected to be published on the OECD website later this year.

The Secretary-General Report includes a brief status update on the adoption of the minimum standards established by the BEPS project under Actions 5 (harmful tax practices), 6 (tax treaty abuse), 13 (country-by-country reporting), and 14 (mutual agreement procedure).

On tax and development, the Secretary-General Report notes that over the past 15 years, the OECD has significantly enhanced its tax collaboration with developing countries. This period has seen the development of a variety of tools, instruments and forums, including the establishment of the Inclusive Framework with extensive participation from developing countries. The Report states that OECD's commitment to multilateralism in tax matters is complemented by efforts to improve data availability and promote integrated tax and development policy thinking. It further notes that the OECD's capacity-building activities have expanded, now reaching more than 30,000 officials across more than 100 countries each year, with US$2.3b in additional tax collected and US$6.05b in additional tax assessments resulting from the OECD/UN Tax Inspectors Without Borders' initiative.

The Secretary-General Report indicates that since the development of internationally agreed solutions for value-added tax (VAT)/goods and services tax (GST) challenges in digital trade in October 2015, 102 countries have implemented these solutions, with 30 more considering their adoption. The Report notes the importance of these reforms, especially for developing countries where VAT/GST can constitute over 30% of total tax revenues, further noting the role of the reforms "as a critical component of developing countries' strategies to harness the immense potential of digital transformation for growth, job cr and poverty reduction." It highlights the OECD's technical assistance program that has provided support to more than 30 developing countries and technical training to officials from more than 180 countries. The Report indicates that the OECD continues to foster global policy dialogue on addressing VAT/GST fraud and noncompliance in digital trade and adapting to evolving digital business models, including those involving online payments and crypto assets.

The Secretary-General Report also notes that tax revenues have returned to pre-pandemic levels in most of the 130 jurisdictions in the Global Revenue Statistics database. It indicates that higher corporate income tax revenues, particularly in oil and gas sectors, were pivotal in this recovery. It further references the forthcoming 2024 OECD Tax Policy Reforms report, which will cover the fiscal strategies policymakers are employing to balance raising domestic resources and providing tax relief amidst ongoing economic challenges.

Finally, the Secretary-General Report highlights progress in global tax transparency efforts. The Global Forum on Transparency and Exchange of Information for Tax Purposes, with 171 members, continues to focus on the implementation of transparency standards. As of 2023, 126 jurisdictions have committed to the Automatic Exchange of Information (AEOI) standard, with 108 already exchanging information. The Report indicates that this has led to the exchange of information on more than 134 million financial accounts, representing nearly €12t in assets. It further states that developing countries have significantly benefited from exchange of information, collecting nearly 80% of the additional €130b in revenues generated through the exchange of information since 2009.

Taxation and Inequality report

This report explores how tax policies can either mitigate or exacerbate inequality in income and wealth distribution. It highlights persistent income inequality and increasing concentration of wealth among the top 0.001% globally, which it indicates has led to calls for tax reforms aimed at promoting more inclusive growth.

The report discusses the potential to strengthen tax progressivity through measures such as more progressive tax schedules, broader tax bases, and reduced tax arbitrage opportunities. It notes the challenge of differential tax treatment of various income types and assets, which can undermine progressivity.

The report also focuses on the taxation of high-net-worth individuals, noting evidence of comparatively low effective tax burdens at the top of income and wealth distributions. It indicates that international tax cooperation can help enable the effective implementation of domestic tax policies in this area. Progress in tax transparency initiatives, such as the CRS and the upcoming CARF, are noted as significant steps forward.

The report suggests further analysis to inform domestic policy options and explore opportunities for enhanced international cooperation, balancing the need to address inequality with the goal of supporting economic growth.

Strengthening International Tax Transparency on Real Estate report

This report builds on prior efforts to enhance tax transparency in the real estate sector. It outlines the ongoing technical work to develop a short-term solution for the exchange of readily available information on real estate transactions, holdings and income between tax administrations of interested jurisdictions. The report also considers key elements for a potential system that would grant tax authorities fast-track access to data in real estate and beneficial ownership registers. The report indicates that these elements will be further explored to assess their technical, legal and financial implications.

Bringing Tax Transparency to Crypto-Assets report

This report focuses on the development and implementation of the CARF, which was created in collaboration with G20 countries to expand the AEOI to include the crypto-asset sector. The report indicates that domestic and international frameworks, a technical framework for reporting and exchange, an administrative framework for compliance and confidentiality safeguards are necessary to ensure effective implementation. According to the report, a dedicated CARF Group within the Global Forum on Transparency and Exchange of Information for Tax Purposes oversees this initiative, drawing on their experience with the CRS. The goal is to prepare all relevant jurisdictions to begin exchanges under CARF, with 58 members already working toward beginning exchanges by 2027.

Beneficial Ownership and Tax Transparency report

This report assesses the worldwide advancements and obstacles with respect to enforcing beneficial ownership transparency standards. It stresses the necessity of obtaining information on the individuals who ultimately control legal entities and arrangements. The report reviews the action plan developed in response to the G20's call for improved transparency, which included peer reviews, cooperation between the Global Forum and the Financial Action Task Force and sharing best practices. It notes that challenges persist, such as inadequate legislation, concern about data quality and lack of effective supervision and enforcement. Looking ahead, the report notes the importance of robust capacity-building initiatives and the potential to harness technological innovations in beneficial ownership registers.

Implications

The G20 communiqué reflects the continuing commitment to both pillars of the BEPS 2.0 project as well as the interest in further advancing international tax cooperation in other areas, including a particular focus on taxation of ultra-high-net-worth individuals. The Secretary-General Report underscores the progress that has been made on Pillars One and Two as well as the work that is continuing. The Report also highlights the significant work in other areas, including the ongoing focus on increasing transparency and the growing interest in tax as a tool to address inequality.

Businesses will need to track legislative developments and implementation schedules across various jurisdictions to be ready for these tax changes. Looking ahead, it also will be important to monitor the emerging tax discussions in new or newly expanded focus areas and in additional global and regional forums.