The evolution of international tax regime and the OECD Two-Pillar solution: Analysis from a developing country perspective

Abstract

This paper explores the evolution of international taxation and the impact of the OECD Two-Pillar solution on developing countries. The agreement on the OECD (Organization of Economic Co-operation and Development) Two-Pillar solution reached in October 2021 is a major and radical change in the international taxation regime. This paper analyzes the evolution of international taxation from its initial mold, through its stages of development, and finally to the adoption of the Two-pillar solution by the OECD. It scrutinizes the influence exerted by economically advanced nations, while developing the design considerations of the present system of taxation. The research finds that the influence the developing countries exerted in the design of the present system of taxation was meager. The massive influx of digitization in the recent era has made the age-old system of taxation redundant. There have been various instances of multinational corporations resorting to various tax-avoidance measures, effectively using the loopholes of the current taxation system. Developing countries were most impacted by the tax-avoidance of large corporations, because it leads to reduced tax revenue in the hands of the government to undertake essential humanitarian and developmental activities. Developing countries also do not possess the expertise or leverage to deal with tax-avoidance of multinational firms. The findings suggest that the decision making process in the OECD is still being manipulated by the developed countries. The views from economically less-developed countries are not accommodated justifiably. The study also seeks to explore the impact of the Two-pillar solution and analyze what the future holds for developing countries with regard to the new system of taxation.