OECD's 'Pillar Two' rules for implementation of 15% global minimum tax

The Pillar Two model rules provide governments a precise 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 minimum tax will apply to MNCs with revenue above €750 million and is estimated to generate around $150 billion in additional global tax revenues annually, according to an OECD press release.

The GloBE rules provide for a coordinated system of taxation intended to ensure large MNC 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 per cent rate.

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. They also address administrative aspects, including information filing requirements, and provide for transitional rules for MNCs that become subject to the global minimum tax. 

In early 2022, the OECD will release the commentary relating to the model rules 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.

Fibre2Fashion News Desk (DS)