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Taxing the Digital Economy

The Challenge

To ensure that companies pay tax in jurisdictions where they conduct business but may have no physical presence, a group of more than 135 countries led by the Organisation for Economic Co-operation and Development (OECD) is reforming global taxation rules. This Inclusive Framework approved a two-pillar approach in October 2021 that will affect all sectors of the global economy.

The first pillar proposes shifting some taxing rights into market or destination countries for the largest 100 multinational enterprises (MNEs) and removing all unilateral digital services taxes. The logic of the proposal is not suited to the extractive industries, and this first pillar now excludes minerals and hydrocarbons.

The second pillar of the OECD’s proposal, called the Global Anti-Base Erosion Proposal (GloBE), seeks to use a 15% global minimum tax to discourage MNEs from transferring profits away from countries of operation. This could support effective taxation in resource-rich developing nations. At least two dozen countries are preparing to implement the minimum tax on worldwide corporate income in 2024, and many large multinational mining companies will be subject to the levy.

Our Response

In 2021, the IGF prepared a briefing note outlining the OECD’s global digital tax reform proposal and key concerns for mining nations. Global Digital Tax Reforms: Highlighting Potential Impacts for Mining Countries is available in English, French, and Spanish.

To dig deeper into the topic, the IGF partnered with the African Tax Administration Forum (ATAF) to examine a critical issue arising under the OECD-led proposal that could cost resource-rich developing countries mining investment and revenue from the sector. In April 2021, IGF and ATAF published Global Digital Tax Reforms and Mining: The Issue of Timing Differences.

Global Minimum Corporate Tax, Incentives, and Developing Countries

The more than 135 countries adopting the global minimum corporate tax will need to implement and administer the rules in accordance with model legislation and a commentary approved by the OECD/G20 Inclusive Framework. In 2023, the International Institute for Sustainable Development (IISD), the IGF’s host, partnered with the International Senior Lawyers Project to publish A Guide for Developing Countries on How to Understand and Adapt to the Global Minimum Tax. The guide provides policy-makers in developing countries with a simple framework to understand how the 15% global minimum corporate tax may affect them and how to adapt domestic tax policy in response. To complement this guide, IISD also published a Q&A for policy-makers reconsidering tax incentives as an investment promotion tool. This broader work is part of IISD’s taxation program.