UK and International Tax news
OECD Releases Pillar Two Model Rules
Friday 24th December 2021
The OECD has published detailed rules to assist in the reform of the international tax system ensuring that MNEs will be subject to a minimum 15% corporate tax rate from 2023.
The Pillar Two Model Rules provide a 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 750m and is estimated to generate around USD 150bn in additional global tax revenues annually.
The GloBE rules provide for a co-ordinated system of taxation intended to ensure large MNE groups pay this minimum level of tax on income arising in each of the jurisdictions in which they operate. 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 new rules will assist countries to bring the GloBE rules into domestic legislation in 2022. They provide for a co-ordinated system of interlocking rules that:
- define the MNEs within the scope of the minimum tax;
- set out a mechanism for calculating an MNE’s effective tax rate on a jurisdictional basis,
- for determining the amount of top-up tax payable under the rules, and
- impose the top-up tax on a member of the MNE group in accordance with an agreed rule order.
The rules address the treatment of acquisitions and disposals of group members and include specific rules to deal with particular holding structures and tax neutrality regimes. In addition, they address administrative aspects, including information filing requirements, and provide for transitional rules for MNEs that become subject to the global minimum tax.
The OECD will release the Commentary relating to the model rules in the new year and address co-existence with the US Global Intangible Low-Taxed Income (GILTI) rules. This will be followed by the development of an implementation framework focused on administrative, compliance and co-ordination issues relating to Pillar Two.
The Inclusive Framework is also developing the model provision for a Subject to Tax Rule, together with a multilateral instrument for its implementation, to be released in early 2022. A public consultation event on the implementation framework will be held in February and on the Subject to Tax Rule in March.
For more information on the above, please contact Keith Rushen on 0207 486 2378.