The taxation pressure on Multinational Enterprises (MNEs) continues with the OECD has releasing technical guidance to assist countries to implement the second phase of the reform of the international tax rules, better known as Pillar Two.
One hundred and forty (or so) member countries have been jointly developing a “two pillar” approach since 2017 to address the tax challenges arising from the digitalisation of the economy. The two-pillar solution is to be effective from 2023.
Under Pillar One, the taxing rights over MNEs from their home countries are to be “reallocated” to the markets where they have business activities and earn profits, regardless of whether firms have a physical presence there.
Pillar Two will implement a global minimum corporate tax rate of 15% and will apply to MNEs with revenue above €750 million. The rules create a “top-up tax” to be applied on profits in any jurisdiction whenever the effective tax rate (determined on a jurisdictional basis) is below the minimum 15% rate.
The published model legislation for this new global minimum tax regime is known as the Global Anti-Base Erosion or “GloBE” rules for short. The commentary provides guidance on the interpretation and application of the model as well as clarifying the meaning of certain terms. The commentary provides guidance on a number of matters including but not limited to;
- Defining the MNEs which are to be subject to the minimum tax
- Setting out a mechanism for calculating an MNE’s effective tax rate on a jurisdictional basis and for determining the amount of top-up tax payable under the rules
- How to impose the top-up tax on a member of the MNE group in accordance with an agreed rule order.
- The treatment of acquisitions and disposals of group members
- Administrative aspects including information filing requirements
- Transitional rules for MNEs that become subject to the global minimum tax
The OECD states that they will now develop an Implementation Framework to support tax authorities implementation and administration of the GloBE Rules. Stay tuned for more on this.
We will continue to keep our clients updated on the progress of the new GloBE Rules – if you do have any queries on the impact this may have on your business, please reach out to your Engagement Partner.