On 8th October, 2021, the Organization for Economic Co-operation and Development (OECD) announced that 136 jurisdictions out of 140 members of the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) struck a landmark deal in reforming the international tax system.  The deal seeks to ensure the application of profit allocation rules in taxing the digital economy and subject Multinational Enterprises (MNEs) to minimum tax at 15%, effective 2023.


The OECD is an intergovernmental economic organisation founded in 1961 to stimulate economic progress and world trade. In September 2013, the OECD and G20 countries endorsed a 15-point Action Plan for the purpose of addressing BEPS i.e. tax avoidance and profit shifting by MNEs. Action 1 of the 15-point Action Plan focuses on addressing the challenges of the digital economy.

In 2016, the OECD/G20 Framework released blue prints on a two-pillar approach (Pillar One and Pillar Two) to address concerns arising from taxation of the digital economy.

Pillar One seeks to ensure a fairer distribution of profits and taxing rights among countries with respect to the largest and most profitable MNEs by re-allocating some taxing rights over MNEs from their home countries to the markets where they have business activities and earn profits, regardless of whether they have physical presence there.  Specifically, MNEs with global sales above EUR 20 billion and profitability above 10% (that can be considered as the winners of globalisation) will be covered by the new rules with 25% of their profit (above the 10% threshold) to be reallocated to market jurisdictions.

Pillar Two introduces a global minimum corporate tax rate set at 15%. The new minimum tax rate will apply to companies with revenue above EUR 750 million.

Following years of intensive negotiations on the two-pillar approach, 136 jurisdictions (out of the 140 members of the OECD/G20 Inclusive Framework on BEPS) have now agreed to join in the two-pillar solution proposed by the OECD in addressing the tax challenges arising from digitalisation of the economy. The four countries that are yet to join the agreement are Kenya, Nigeria, Pakistan and Sri Lanka.

The OECD has stated that countries are aiming to sign a multilateral convention during 2022, with effective implementation in 2023. The convention is expected to be the vehicle for implementation of the newly agreed taxing right under Pillar One including removal of provisions relating to all existing Digital Service Taxes and other similar relevant unilateral measures.  With respect to Pillar Two, the OECD will develop model rules for bringing Pillar Two into domestic legislation during 2022, to be effective in 2023.


As technology becomes entrenched in global business and commerce, the OECD two-pillar deal seeks to provide certainty to taxpayers and tax administrators around the world with respect to the taxation of income and profits arising from the digital economy.  In view of this deal, MNEs that exist in countries where the corporate income tax rate is currently less than the global minimum tax rate may have to pay higher taxes thus increasing their tax obligations and liabilities.

However, there have been some concerns around the impact of the deal on the Nigerian tax collection drive which has resulted in Nigeria's reluctance in joining the global deal.  Some stakeholders have expressed the view that the global minimum tax rate is too low to raise sufficient revenue from taxation of the digital economy vis-à-vis the currently applicable 30% tax rate. In addition, the available tax incentives for MNEs in Nigeria may render 15% tax rate redundant if applied.  Nevertheless, it is important to evaluate the applicable modality for collecting taxes from such entities and the overall potential implications on diplomatic trade relations in taking a final position. We advise affected MNEs to seek relevant professional supports in the intervening period and also evaluate the impact of the new international tax on their operations.  While we await an official communication from the Federal Government of Nigeria on the OECD deal, we will continue to monitor developments and provide updates on Nigeria's response to the deal.

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