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On 1 July 2021, in an historic agreement, 130 countries approved a statement providing a framework for reform of the international tax rules. These countries are members of the OECD/G20 Inclusive Framework on BEPS (“IF”), comprising 139 countries. 

Malta is one of the member countries which agreed to the statement.

The statement sets forth the key terms for an agreement of a two-pillar approach to reforms and calls for a comprehensive agreement by the October 2021 G20 Finance Ministers and Central Bank Governors meeting, with changes coming into effect in 2023. Pillar One of the agreement is a significant departure from the standard international tax rules of the last 100 years, which largely require a physical presence in a country before that country has a right to tax. Pillar Two secures an unprecedented agreement on a global minimum level of taxation which has the effect of stipulating a floor for tax competition amongst jurisdictions.

Read a more detailed write-up on the statement together with KPMG observations prepared by KPMG’s EU Tax Centre.

For tax leaders:

The framework for reforms agreed by the 130 members of the IF will have a wide-reaching effect on many MNEs. Given the ambitious timeline for implementation, it is important that potentially impacted businesses understand what is coming and prepare for the resulting changes. Tracking the timeline for further developments, MNEs should: 

  1. Monitor Development: Between now and October, the members of the IF and the OECD secretariat will be working to fill out the details and finish the design of the rules necessary to implement various aspects of Pillar One and Two. These details will be important to the operation and impact of the new rules. 

  2. Consider Engagement: As the OECD works towards finalizing rules, there may be formal and informal opportunities for engagement both at the OECD or with implementing jurisdictions. The OECD and participating members have welcomed engagement by the business community in completing the work and understanding practical considerations including administrability. 

  3. Model and Assess Impact: The reforms being considered are complex and potentially will intersect with existing domestic rules. It will be important for MNEs to use appropriate assessment tools to model impacts, evaluate interdependencies and prevent double taxation or other inadvertent impacts. 

  4. Track Implementation: Implementation of agreed reforms requires legislative adoption and, where relevant, ratification of a signed multilateral instrument. Given the variations in legislative and parliamentary processes across jurisdictions, MNEs will need to understand the timelines and relevant requirements of the various processes and track when laws in different jurisdictions come into effect. 

KPMG Malta is closely monitoring developments on Pillars One and Two at a global/political level, at OECD, EU and local levels and within particular jurisdictions. Should you wish to have a discussion around these developments, please do not hesitate to get in touch with us.