The ups and downs of trade multilateralism, following the 2008 global financial crisis, has produced the rise of tax multilateralism. Over the last decade, one of the biggest reforms in tax multilateralism is the global tax deal. Through the Organization for Economic Co-operation and Development (OECD), this international tax regime, with the giant project of Base Erosion and Profit Shifting (BEPS), got a mandate from the G20 economic framework.

The OECD/G20 Inclusive Framework on BEPS proposed Two Pillars solution to address tax concern related to digital economic activity and to establish a minimum corporate tax rate. In the fall of 2020, a detailed blueprint for the Two Pillars was published, outlining more than 500 pages of proposed design features and rules for a historic international tax regime.

At the core of Pillar One, in response to the massive growth of digital business operations, taxing rights on a slice of large multinational corporation’s profits will be shifting from residence and source countries to the market jurisdiction. Indeed, international tax system, since its inception a century ago, has only divided in putting taxing jurisdiction on the definition of “source” and “residence”. In the post-cold war, the world’s growing economic globalization has problematized this definition through the dramatic increase in cross-border investment and the rise of the multinational corporation. In praising of multilateral trade liberalization, allowing sophisticated taxpayers to exploit the inconsistencies between jurisdictions by shifting profits to tax havens through related party transactions, often resulting in income that is taxed nowhere. So, focusing on Pillar One’s concern to market jurisdictions, this situation would bring the terms of destination-based taxation. To interpret the underlying rationales of that, it aims to minimize profit shifting and reduce tax distortions by relocating taxation to the location of productive activity. 

Beyond the concept of market jurisdiction, Pillar One is closely tied to the geoeconomic concerns between the European Union and the United States regarding taxing rights on digital economic activity. On geopolitical lens, Pillar One is seen as a multilateral solution to Digital Service Tax, which the EU was taking unilaterally on tax obligation for US multinational companies. Instead of imposing tariffs on countries enacting DST detected as a discriminatory measure, the U.S. government agreed to terminate such tariffs while negotiations on Pillar One were an attempt as a favorable solution. So, the consultation over pillar one was work to smooth geopolitical tension. However, despite the passing of the June 30 deadline, the US government has yet to show faith in ratifying a global tax deal. Analysts predicted that a global tax war, once again enacting unilaterally DST over digital big companies, is inevitable.   

Pillar Two has a principle concerning double non-taxation, through creating a minimum tax of 15% on multinational enterprise (MNE). Through eradicating profit shifting and locating a floor on tax competition, Pillar Two guarantees to increase global revenue, and exclusively, on a permanent basis. Pillar Two’s geoeconomic matters revolve around the consequences in a post-global financial crisis world, ranging from the rising discourse on inequality to the wave of austerity policies. Distributional concerns paved the way for Pillar Two’ concentrating on policy objective to combat inequality. Moreover, the pandemic of Covid-19 also contributed to the justification for this pillar. In the spring of 2021, during the prolonged pandemic, the five finances minister, predominantly emerging countries, finally expressed a willingness toward a global tax corporation, indicating the desperate need for their government revenue after being hit by pandemic-related expenditures.  

 In a positive way, a global minimum corporate tax would enhance sovereignty because on tax competition, battle amongst modern nation-state to race to the bottom in praising for capital inflow, had eroded national interest. Technically, while countries have got a political agreement in Pillar One through multilateral instrument, Pillar Two’s architecture depends on unilateral domestic legislation rather than a treaty. 

Yet, the blind spot dimension in OECD-led international tax regime is the priority of developing countries. During the creation and implementation of this regime, developing countries have insisted on countering the OECD’s discriminatory posture and instead creating a new concern for initiating a UN tax framework convention with inclusive and effective in international tax cooperation.

 Recently, the negotiations for a UN tax framework convention reached a significant milestone with the UN Ad Hoc Committee finalizing a draft for the Terms of Reference (ToR). This draft is now awaiting submission to the General Assembly at the UN’s 79th session, voting on whether to continue with further negotiations by the nation-state committees. 

One of the greatest impacts of the current international tax regime is while rampant national sovereignty, widespread and unchecked unilateral policies, and a preference for bilateral agreements have driven the trade regime into crisis, the tax regime was capable to adapt to these pressures and foster a more integrated multilateral building. Moreover, from academic point of view, the international tax regime would potentially be replacing the WTO as a model for regime design in international economic law discourse.  

So, it is essential to closely observe to the current international tax cooperation, both under the ongoing yet stalemate OECD framework and the emerging UN initiative. For global investment climate to thrive, it must be aligned with a robust and more progressive tax system, in order to ensure a distributional matter. At the very least, redistribution could help stabilize the fluctuation in trade multilateralism by dealing with transaction cost which imposed by globalization in the post-global financial crisis.