Reform of the international tax system in the digital era has been suggested by the OECD, via an inclusive framework to which more than 140 countries are members, to address tax avoidance issues of multinational enterprises (MNEs). The digitalization of world economies has enabled MNEs to utilize digital technologies to conveniently circumvent paying corporate income taxes by shifting their profits from high tax rate countries to low tax rate countries (base erosion and profits shifting).

To address the base erosion and profits shifting of MNEs, the OECD inclusive framework agrees to implement the following “two pillar” approaches: 1) allocation of taxing rights to market jurisdiction on exceeding normal profits of MNEs with a more broadened nexus rule not requiring permanent establishments in the jurisdiction (Pillar 1), and 2) setting the minimum level of corporate tax rates (15%) at the global level by allowing eligible jurisdictions to collect top-up taxes for MNEs when their subsidiaries pay effective tax rates below the minimum rates (Pillar 2). If the implementation process is carried out as planned, each country’s tax laws and bilateral tax treaties will be adapted to incorporate the two pillars by 2023, and they will be put into action from 2024.