Consensus is never easy. Folks are unique, and while countries try their hardest to engender shared values, norms, and policies, getting multiple countries to agree on a single issue or theme is rare. As a global community, we’ve done it, but it’s often exhausting along the way.

Last year roughly 140 nations agreed to overhaul the rules governing the taxation of profits by companies doing business in more than one country. In today’s globalized world, there are a lot of these. The group’s stated objective was to tax those businesses that are digital in nature and profit off consumers everywhere from Sidney to Taipei, Cape Town, and even Montevideo. The first part of the proposal is known as Pillar One.

At its core, Pillar One will apply to those multinationals operating at EUR 20 billion-plus with pre-tax profit margins in excess of 10%. The intention is to transfer some of the tax revenue to countries where clients and customers live and away from the physical base of the company (or where said company locates its intellectual property). Closely aligned with Pillar One is the aptly named Pillar Two. This second pillar is a 15% minimum tax on large companies.    

Pillars One and Two were part of a larger agreement brokered under the auspices of the Organization for Economic Cooperation and Development (OECD). Initially set to take shape by mid-2022, delays are now pushing potential implementation to 2023. Some fear that further delays will cause some countries to jump ship and press ahead with their own tax reforms. The first taxable targets will invariably be US-based technology companies. 

OECD secretary-general, Mathias Cormann, has indicated that the first half of 2023 will be a hard deadline. As to be expected with different presidencies, what had been negotiated under former President Trump is distinct to current President Biden. Without wading into political minutiae, President Biden’s cabinet has been pushing ahead, specifically on Pillar Two. This would benefit Washington’s coffers as the minimum 15% tax would remain Stateside in many instances. 

Currently, neither the EU nor the US can implement the minimum tax. Hungary’s veto vote is hindering EU progress and a stalled Democratic fiscal legislation is to blame on the US side. Perturbed by Hungary’s stance, the US recently moved to terminate its tax treaty with the Central European country. Negotiations have been intense, and under the new rules, the US could even lose revenue that would in turn be paid in Europe from tech firms. Along the same vein, however, foreign-based companies that sell to US consumers could end up routing more taxes back to the US. The same would apply to US-based pharmaceutical companies that register their profits from sales in foreign jurisdictions.

A push to 2023 is imminent. The ramifications of a global agreement on taxes would be a game-changer, but the political fallout is predictably uncertain.