OECD: Pillar Two model rules for domestic implementation of 15% global minimum tax

Model rules to assist with the implementation of a reform to the international tax system

Domestic implementation of 15% global minimum tax

The Organisation for Economic Cooperation and Development (OECD) today published model rules to assist with the implementation of a reform to the international tax system—a reform that is intended for multinational enterprises (MNEs) to be subject to a minimum 15% tax rate, effective from 2023.

According to today’s OECD release:

  • The Pillar Two model rules provide a precise template for governments to move forward with the two-pillar solution to address the tax challenges arising from digitalisation and globalisation of the economy.
  • The model rules define the scope and set out the mechanism for the “Global Anti-Base Erosion” (GloBE) rules under Pillar Two and will introduce a global minimum corporate tax rate set at 15%.
  • The GloBE rules provide for a coordinated system of taxation so that large MNE groups pay a minimum level of tax on income arising in each of the jurisdictions in which they operate.
  • The GloBE 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 15% minimum tax will apply to MNEs with revenue above €750 million and is estimated to generate around U.S. $150 billion in additional global tax revenues annually.

The OECD release further reports that the new Pillar Two model rules will assist countries to bring the GloBE rules into domestic legislation in 2022, and to provide for a coordinated 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, and for determining the amount of top-up tax payable under the rules
  • Impose the top-up tax on a member of the MNE group in accordance with an agreed rule order

The Pillar Two model rules also address the treatment of acquisitions and disposals of group members and include specific rules to deal with particular holding structures and tax neutrality regimes.

The OECD also stated that the rules address administrative aspects, including information filing requirements, and provide for transitional rules for MNEs that become subject to the global minimum tax. 

What’s next?

In early 2022, the OECD will release the commentary relating to the model rules and address co-existence with the U.S. global intangible low-taxed income (GILTI) rules. This will be followed by the development of an implementation framework focused on administrative, compliance, and coordination 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 the early part of 2022. Public consultation events regarding the implementation framework will be held in February 2022 and regarding the subject to tax rule in March 2022.

Full text of the model rules, including an overview, a set of “frequently asked questions” (FAQs), and fact sheets on the application of the rules are available on the OECD website.

Read a December 2021 report prepared by the KPMG member firm in the Netherlands

 

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