Digitalization of the Global Economy and the OECD Reform of MNE’s Corporate Income Tax: Background, Challenges, and Issues

This chapter explores key developments in international tax law amid the digitalization of the global economy. It examines challenges in taxing multinational enterprises (MNEs) and the OECD’s reform efforts under “Pillars One and Two”. The current tax system, designed for a pre-digital era, struggles to capture revenue from digital businesses, enabling profit shifting to low-tax jurisdictions and eroding tax bases, especially in Europe and developing economies. Pillar One aims to reallocate profits based on consumer presence rather than physical establishment, introducing “Amount A” to tax excess MNE profits. Pillar Two establishes a 15% global minimum corporate tax to curb harmful tax competition, adopted as EU law in 2022. While Pillar Two has progressed, Pillar One negotiations remain unresolved. These reforms raise legal and political concerns, including conflicts with international law and EU state aid rules. This chapter critically assesses whether OECD reforms align with the EU’s legal and economic integration framework, despite broad recognition of their necessity in modernizing international taxation.