Direct Tax update
International Corporate tax update – Minimum global corporate income tax rate of 15%.
One hundred thirty countries and jurisdictions, out of the 139 members of the Organization for Economic and Co-operation Development (OECD), representing more than 90% of global GDP, has joined a new two-pillar plan to reform international tax rules and ensure that multinational enterprises pay a fair share of tax wherever they operate.
Under Pillar One, a formulaic share of the consolidated profit of a multinational enterprise (MNE) will be allocated to markets (i.e., where sales arise). The profit to be reallocated will be 20 to 30% of the profit over 10% of revenue. Two sectors have been excluded out from the amount Pillar One: extractive industries and regulated financial services.
Under Pillar Two, If members have agreed to enact a jurisdictional-level minimum tax system with a minimum effective tax rate of at least 15%. Companies with global turnover above EUR 750m will be within Pillar Two headquarter jurisdictions’ scope to decide to apply the rules to smaller, domestic MNEs. However, Exclusions from the rules are available for pension funds or investment funds that are Ultimate Parent Entities of an MNE Group or any holding vehicles used by such entities, organisations or funds. International shipping services will also be excluded from the GloBE rules; importantly, If members are not required to adopt the rules. The rules will have the status of a common approach and not of a minimum standard.
The Statement suggests both Pillar One and Two will come into effect in 2023, with the multilateral instrument for the former developed and open for signature in 2022 and legislation for the latter brought in 2022.
Read full statement:
On 20th December, 2021, the Organisation for Economic Co-operation and Development (OECD) published detailed rules to assist in implementing a landmark reform to the international tax system, which will ensure Multinational Enterprises (MNEs) will be subject to a minimum 15% tax rate from 2023. Tax Challenges Arising from the Digitalisation of the Economy – Global Anti-Base Erosion Model Rules is Pillar Two. The Pillar, Two model rules provide governments a precise template for taking forward the two-pillar solution to address the tax challenges arising from digitalisation and globalisation of the economy agreed in October 2021 by 137 countries and jurisdictions under the OECD/G20 Inclusive Framework on BEPS.
The rules define the scope and set out the mechanism for the so-called Global Anti-Base Erosion (GloBE) rules under Pillar Two, which will introduce a global minimum corporate tax rate set at 15%. The minimum tax will apply to MNEs with revenue above EUR 750 million and is estimated to generate around USD 150 billion in additional global tax revenues annually.
Read detailed rules: