GLOBAL MINIMUM TAX - DETAILS ANNOUNCED. The OECD recently published detailed rules to assist with the implementation of a landmark reform to the international tax system which will ensure Multinational Enterprises (MNEs) will be subject to a minimum 15% tax rate from 2023.
The Pillar Two model rules provide countries with a template for the domestic implementation of 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 Base Erosion and Profit Shifting.
The new Pillar Two model rules provide for a co-ordinated system of complex related rules, using a mix of accounting and tax concepts, that:
- define the MNEs within the scope of the minimum tax (broadly, those with consolidated annual revenue above EUR 750 million (c. NZD 1.2 billion)
- 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, and
- 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, as well as various administrative aspects, including information filing requirements, and transitional rules for MNEs that become subject to the global minimum tax.
In the coming months, the OECD will be releasing further model rules and Commentary, and will also address the interplay between the model rules and the existing US Global Intangible Low-Taxed Income.