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OECD Issues MLI To Implement Pillar Two Subject To Tax Rule

Tuesday 24th October 2023

Following the release in July 2023 of the Outcome Statement on the Two Pillar Solution to Address the Tax Challenges Arising from the Digitalization of the Economy, the OECD/G20 Inclusive Framework on BEPS has recently concluded negotiations on the multilateral instrument that attempts to protect the right of developing countries to ensure multinational enterprises pay a minimum level of tax on a broad range of cross-border intra-group payments, including for services.

The new Multilateral Instrument (MLI) to facilitate the implementation of the Pillar Two Subject to Tax Rule (STTR) is now open for signature, and represents a major step forward in concluding the work under Pillar Two.

The STTR will enable developing countries to tax certain intra-group payments, in instances where these payments are subject to a nominal corporate income tax rate below 9%. The STTR allows source jurisdictions, those in which covered income arises, to impose a tax where they otherwise would be unable to do so under the provisions of tax treaties.

The MLI will allow countries to efficiently implement the STTR in existing bilateral tax treaties. More than 70 developing Inclusive Framework members are entitled to request inclusion of the STTR in their treaties with Inclusive Framework members that apply corporate income tax rates below 9% to covered payments.

The OECD will be the depositary of the MLI and will support governments in the process of its signature and ratification. The OECD is also preparing a comprehensive action plan to support the swift and co-ordinated implementation of Pillar Two, with additional support and technical assistance to enhance capacity for implementation by developing countries.

The OECD has released the text of the MLI along with an explanatory statement, detailed commentary explaining the purpose and operation of the STTR and the model STTR.

If you would like further detail on the above, please contact Keith Rushen on 0044 (0) 207 486 2378.

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