Global Tax Reform: Explaining the Importance of Two Pillars

Kumar Aditya


This year is set to be another year wherein the deliberation shall be on the effective implementation of global tax reform. Changes are occurring in International Tax System (hereinafter being referred to as ‘Tax System’), which shall undergo the most significant changes. The Organisation for Economic Co-operation and Development (hereinafter referred to as ‘OECD’) was founded in 1961 to stimulate economic progress and bring harmony in world trade. The OECD manifested a landmark agreement on global tax reform, which proposes implementing a global minimum tax rate of 15% in 2022.[1] The purpose of this agreement is to end the competitive tax rate of the different states while also ending ‘tax-heaven’ for promoting a healthy business environment. Three European Union (hereinafter referred to as ‘EU’) countries have thrown the OECD’s efforts to introduce a global minimum corporate tax rate of 15 percent in the tax system within 12 months into a state of discomposure. The OECD released the model rules, paving the way for the rollout of the new global tax regime that will subject multinational corporations to a minimum tax of 15% from 2023.[2] The rules set out the mechanism for implementing the tax system adopted by 136 countries.

Global Minimum Tax Rate

The global minimum tax rate aims to end existing tax competition b/w governments to attract and lure foreign private investment. The fiscal policies of several governments aim to discourage multinationals from shifting profits (and tax revenues) to countries that are tax heaven i.e., low-tax rate countries. The deal has two aims: First, to prevent multinationals from paying low taxes (or no tax) by booking their profits in tax havens; and second, to make them pay taxes wherever they operate or conduct business.[3]

This global tax system shall comprise of two-pillar, pillar-1 & pillar-2.

The Pillar-1 & Pillar-2 of Global Minimum Tax Rate

Pillar -1

Pillar – 2

Pillar One seeks to ensure a fairer distribution of profits and taxing rights among countries.

Pillar Two introduces a global minimum corporate tax rate.

Pillar one shall affect the world’s top 100 countries.

Pillar two shall apply to overseas profits of multinational companies (or firms) with €750 million in global sales.

The countries have a sovereign right to adjust-local taxes, where MNCs earn their revenue. The companies’ excess profit–defined as more than 10 percent of total revenue–will be taxed at 25 percent.

The global minimum tax rate shall be 15%. If a company pays less than the abovementioned tax then, the government of the home country can levy more tax to bring on the minimum rate.

Summarily, the tax-reforms does not tend to shrink the space of the economic rights within the sovereign but only assures to mitigate the competitive between the sovereigns. Lastly, the application of the above-mentioned pillars can only be in w.r.t each other, and not in an isolation.

Setback For the GMT Rate

There has been much deliberation and discussion on the positive aspects and nature of the global minimum tax. Due to several factors, a rift is occurring is in the Bloc, leading to a halt on the scheduled plan. The government of Estonia, Hungary, and Poland are protesting due to the planned timetable agreed by the G20 countries in October as part of a broader overhaul of corporate tax rules. They are calling to safeguard, ensuring EU progress on minimum tax via Pillar Two in the global deal intertwined with the progress on Pillar One, which covers rights to tax large, digital multinationals. These governments are seeking an initiative to be contingent on the rollout of a proposed tax system particularly regarding pillar-1 of the global minimum tax system as proposed by OECD that shall due be rubberstamped in June and introduced in 2023. The main insecurity is that the U.S.A. President Joe Biden will fail to find the Congressional support with GOP predicted to win in the November elections i.e., for two congressional chambers, leaving Europe at an economic disadvantage. In addition, Warsaw vetoed a compromise in April which poses a critical situation because EU tax agreements require unanimous support from the EU Member States. Meanwhile Australian Election 2022 can be optimistic after Labour Party winning the presidential election in almost a decade and supporting the global push for multinationals, to face a minimum 15% tax rate.


These reforms are said to be the most progressive & effective manner of enforcing a tax re-structure program. The only difficulty is the implementation of the abovementioned reform in an ill-scheduled way which will result in the application of the reforms in isolation. The global tax reforms are significant, & if implemented as planned then, positive changes will be expected while gradually diminishing severe economic offenses such as tax evasion or money laundering. In an Indian Perspective, the global tax reforms shall be a catalyst for economic growth and strengthening the economic laws as the reforms shall dismantle the tax havens while promoting a level playing field economies of the world including India.

Photo Source:

About the author

Kumar Aditya is fourth-year student pursuing BBA LLB from JIMS Engineering Mgmt. Technical Campus, School of Law, Greater Noida affiliated with Guru Gobind Singh Indraprastha University, Dwarka, New Delhi. He is also pursuing Company Secretary (Executive) from Institute of Company Secretaries of India.


  1. FE Bureau, OECD releases model rules for 15% global minimum tax, FINANCIAL EXPRESS (May. 24, 2022, 08:55 PM), 

  2. OECD releases Pillar Two model rules for domestic implementation of 15% global minimum tax, OECD, (May. 24, 2022, 08:55 PM), 

  3. Richard Mahapatra, Global corporate taxation: The new bare minimum, DOWN TO EARTH, (May. 24, 2022, 08:55 PM), 

Recommended Articles

Leave a Reply

Your email address will not be published.

error: Content is protected !!