A communique was released today following meetings of the finance ministers and central bank governors of the G7 countries.
Others participating in the meetings were the heads of the International Monetary Fund (IMF), World Bank Group, Organisation for Economic Cooperation and Development (OECD), Eurogroup, and Financial Stability Board.
The communique (June 5, 2021) (and included in a release from the U.S. Treasury Department) reflects that as part of a “renewed and urgent effort towards deeper multilateral economic cooperation,” agreement was reached to support efforts through the G20/OECD Inclusive Framework to address the tax challenges arising from globalisation and the digitalisation of the economy and to adopt a global minimum tax.
Specifically, the parties agreed:
- To reach an equitable solution on the allocation of taxing rights, with market countries awarded taxing rights on at least 20% of profit exceeding a 10% margin for the largest and most profitable multinational enterprises
- To provide for appropriate coordination between the application of the new international tax rules and the removal of all digital services taxes, and other relevant similar measures, on all companies
- To commit to a global minimum tax of at least 15% on a country-by-country basis
- To agree on the importance of progressing agreement in parallel on both Pillars and to reach an agreement at the July 2021 meeting of G20 finance ministers and central bank governors
- To embed climate change and biodiversity loss considerations into economic and financial decision-making, including addressing the macroeconomic impacts and the optimal use of the range of policy levers to price carbon
- To support moving towards mandatory climate-related financial disclosures that provide consistent and decision-useful information for market participants
- To implement and strengthen registries of company beneficial ownership information
What does this mean for groups in the Middle East?
This G7’s agreement to establish a global minimum tax rate is historic. An approach to taxing digital businesses is expected to be confirmed, per the OECD’s ongoing work around BEPS 2.0 proposals. For groups in the region (nearly all the GCC countries are OECD Inclusive Framework members), this is likely to result in the need to comply with income allocation rules (under Pillar 1) and a 15% international minimum corporate tax rate (under Pillar 2), where the group is not already subject to this minimum rate. For groups with operations in the UAE, Bahrain or those currently only paying Zakat in KSA or Kuwait, the impact is significant.
How these rules will be implemented and when they are likely to come into force will be covered as part of our MESA Tax Summit tomorrow, 7 June 2021.
Register here: 2021 KPMG Virtual MESA Tax Summit (vfairs.com).
We will also cover these changes in further detail during our BEPS 2.0 July roundtable event. A registration link to be provided in due course.