- European Union-Cyprus-Poland-Portugal-Spain: European Commission Refers Cyprus, Poland, Portugal, and Spain to CJEU for Failure to Notify Transposition of Pillar 2 Directive (approved)
- Lithuania: to Fully Implement Pillar 2 Global Minimum Tax (proposed)
- Poland: Poland’s Sejm Considering Draft Law to Implement Pillar 2 Global Minimum Tax (proposed)
- OECD: Publishes Model Competent Authority Agreement for Amount B of Pillar 1 (approved)
- Puerto Rico: Consults on Implementation of the Pillar Two GloBE Rules (proposed)
- Bulgaria: Consulting on Tax Law Amendments for 2025 (proposed)
- Ukraine: Notes Implementation of Pillar 2 a Priority of National Revenue Strategy (proposed)
- Japan: Updates Q&A Document on Pillar 2 Global Minimum Tax in Relation to QDMTT Safe Harbor (approved)
- Curacao: Planning to Implement Pillar 2 Global Minimum Tax (proposed)
- Australia: Supports OECD Subject to Tax Rule as Part of Commitment to Multinational Tax Reform (approved)
- Finland: Finnish Parliament Considering Bill on Amendments to the Minimum Tax Act (proposed)
- OECD-Barbados-Belize-Benin-Cape Verde-Congo (DRC)-Indonesia-Romania-San Marino-Turkey: Nine Jurisdictions Sign Multilateral Instrument to Implement Pillar 2 STTR with Ten Expressing Intent to Sign (approved)
- US: U.S. House Republicans Express Support for Lawsuit Filed in Belgian Constitutional Court Challenging the Undertaxed Profits Rule (proposed)
- UK: HMRC Consults on Further Draft Guidance on Multinational Top-up Tax and Domestic Top-up Tax (approved)
- Seychelles-OECD: Seychellesto Sign Multilateral Instrument for Pillar 2 Subject to Tax Rule (proposed)
- Bulgaria-OECD: Bulgaria to Sign Multilateral Instrument for Pillar 2 Subject to Tax Rule (proposed)
- Portugal: Council of Ministers Approves Draft Law to Implement Pillar 2 Global Minimum Tax (proposed)
- Singapore: Parliament Considering Legislation for Pillar 2 Global Minimum Tax and 2024 Budget Measures (proposed)
- United Nations-OECD: Independent Commission for the Reform of International Corporate Taxation Recommends UN STTR Over OECD Version (approved)
- Switzerland: Swiss Federal Council Decides to Bring the Pillar 2 Income Inclusion Rule into Force in 2025 (approved)
- Brazil: Update – Brazilian Government Considering Tax Increases and Global Minimum Tax to Increase Revenue (proposed)
- Singapore: Publishes Summary of Responses to Consultation on Legislation for Pillar 2 Global Minimum Tax and 2024 Budget Measures (proposed)
European Union-Cyprus-Poland-Portugal-Spain
The European Commission has announced its referral of Cyprus, Poland, Portugal, and Spain to the Court of Justice of the European Union for failing to notify the transposition of Council Directive (EU) 2022/2523 (Pillar 2 Directive) into national law.
The Commission decides to refer SPAIN, CYPRUS, POLAND and PORTUGAL to the Court of Justice of the European Union for failing to notify measures transposing into national law the Council Directive (EU) 2022/2523 (Pillar 2 Directive)
Today, the European Commission decided to refer Spain, Cyprus, Poland, and Portugal to the Court of Justice of the European Union for failing to notify measures for the transposition into national law of Council Directive (EU) 2022/2523 of 15 December 2022 on ensuring a global minimum level of taxation for multinational enterprise groups and large-scale domestic groups in the Union (Pillar 2 Directive).
All EU Member States were required to bring into force the laws necessary to comply with the Pillar 2 Directive by 31 December 2023, and communicate the text of those measures to the Commission immediately. These measures are applicable in respect of the fiscal years beginning from 31 December 2023.
To date, almost all EU Member States have met these obligations, however, the national implementing measures still have not been notified by Spain, Cyprus, Poland, and Portugal.
The Commission sent reasoned opinions to Spain, Cyprus, Poland, and Portugal in May 2024.
The Commission acknowledges that significant efforts are being made by the authorities to finalise their Pillar 2 national implementing legislation but, to date, these Member States have not notified the transposition measures and therefore it is taking a formal step to refer Spain, Cyprus, Poland, and Portugal to the Court of Justice of the European Union for lack of transposition of the relevant EU provisions.
Background
The transposition of the Directive is key for the effective implementation in the Union of Pillar 2, the minimum taxation component of the G20/OECD’s reform of international taxation. Pillar 2 will limit the race to the bottom in corporate tax rates. The profit of the large multinational and domestic groups or companies with a combined annual turnover of at least €750 million will be taxed at a minimum effective tax rate of 15%. The Commission considers the implementation of the Pillar 2 rules a priority because it will help reduce the risk of tax base erosion and profit shifting and ensure that the largest multinational groups pay the agreed global minimum rate of corporate tax.
Lithuania
Lithuania to Fully Implement Pillar 2 Global Minimum Tax (proposed)
The Lithuanian parliament (Seimas) is considering a draft law to fully implement the Pillar 2 global minimum tax in accordance with Council Directive (EU) 2022/2523 of 14 December 2022 (previous coverage). As previously reported, Lithuania has partially implemented the Directive by opting to defer the application of the main rules, including the income inclusion rule (IIR) and the undertaxed payment/profit rule (UTPR). In addition to the IIR and UTPR, Lithuania will also implement a domestic top-up tax. As drafted, the law for the full implementation is to enter into force on 1 January 2025.
Poland
Poland’s Sejm Considering Draft Law to Implement Pillar 2 Global Minimum Tax (proposed)
Poland’s Sejm (lower house of parliament) is considering a draft law submitted on 25 September 2024 for the implementation of the Pillar 2 global minimum tax in line with the Council Directive (EU) 2022/2523 of 14 December 2022 (previous coverage). The draft law provides for the introduction of the Pillar 2 income inclusion rule (IIR) and the undertaxed payment/profit rule (UTPR) in order to ensure a minimum tax level of 15% for MNE groups with annual consolidated revenue of at least EUR 750 million in at least two of the preceding four fiscal years. The draft law also provides for the introduction of a qualified domestic minimum top-up tax (QDMTT), as well as certain safe harbors.
As drafted, the law will enter into force on 1 January 2025. However, a transitional provision provides that a group may choose to apply the provisions of the law to the tax year commenced after 31 December 2023, which is irrevocable. In this case, the provisions of the law will apply as if it entered into force on 1 January 2024 and, in particular, the IIR and QDMTT will apply in respect of the tax year commenced after 31 December 2023.
OECD
OECD Publishes Model Competent Authority Agreement for Amount B of Pillar 1 (approved)
On 25 September 2024, the OECD announced the publication of a Model Competent Authority Agreement (MCAA) to facilitate the implementation of its political commitment on Amount B of Pillar 1.
International tax reform: OECD/G20 Inclusive Framework on BEPS takes a further step on the implementation of the Amount B of Pillar One
Today, the OECD/G20 Inclusive Framework on BEPS (Inclusive Framework) is publishing a Model Competent Authority Agreement (MCAA) to facilitate the implementation of its political commitment on Amount B of Pillar One. This practical tool is designed to be particularly beneficial for jurisdictions with limited resources and data availability.
At the beginning of this year, the Inclusive Framework released a report on Amount B of Pillar One. This report provides a simplified and streamlined pricing framework for baseline marketing and distribution activities that is expected to reduce transfer pricing disputes, compliance costs, and enhance tax certainty for tax administrations and taxpayers alike.
The implementation of Amount B is supported by the political commitment from all Inclusive Framework members to take all reasonable steps to relieve potential double taxation that may arise from the application of the simplified and streamlined approach by a covered jurisdiction where there is a bilateral tax treaty in effect.
Additional guidance on Amount B – including the definition of covered jurisdiction for the Inclusive Framework political commitment on Amount B – was published in June 2024, allowing jurisdictions to begin with implementation.
Further work on the Pillar One package, including the Amount B framework, is ongoing as indicated in the Statement by the Co-Chairs of the Inclusive Framework on 30 May 2024.
Puerto Rico
Puerto Rico Consults on Implementation of the Pillar Two GloBE Rules (proposed)
Puerto Rico’s Department of the Treasury has launched a Public Consultation on the Implementation of the Pillar Two GloBE Rules in Puerto Rico. The consultation covers general policy considerations and general legal considerations.
As noted in the consultation document, the Department of the Treasury is focused on inbound investments at this stage and is not considering the implementation of the Income Inclusion Rule (IIR) or Undertaxed Profits Rule (UTPR) at this moment. The effect of this policy decision is the following:
- MNE Groups headquartered in Puerto Rico will not be required to apply the IIR and therefore, could be potentially required to apply the IIR or UTPR in other jurisdictions in relation to Constituent Entities located in low-taxed jurisdictions;
- Parent Entities located in Puerto Rico of foreign headquartered MNE Groups will not be required to apply the IIR; and
- Puerto Rico will not collect any tax under the UTPR that it otherwise could have the right to collect.
Since the Department of the Treasury is not considering the implementation of the IIR or UTPR, the main focus of the consultation document is on the potential introduction of a Qualified Domestic Minimum Top-up Tax (QDMTT) and the related design features. The consultation document also covers the potential implementation of an alternative minimum tax other than a QDMTT, which could take the form of a Domestic Minimum Top-up Tax (DMTT) or some other form of domestic minimum tax (DMT). Lastly, the consultation document covers the impacts of tax Incentives and grants.
The deadline for comments is 10 October 2024.
Bulgaria
Bulgaria Consulting on Tax Law Amendments for 2025 (proposed)
Bulgaria’s Ministry of Finance has announced the publication of tax law amendments for 2024 for public consultation, including amendments and supplements to the Corporate Income Tax Act, the Personal Income Tax Act, the Value Added Tax Act, and the Excise Duties and Tax Warehouses Act.
Some of the main amendments/supplements include:
- Extending the tax incentives for investment in high unemployment areas until 2030;
- Updating the legislation for the Pillar 2 global minimum tax in line with the latest OECD administrative guidance; and
- Implementing the EU small business scheme for cross-border supplies, allowing small businesses in one EU Member State to benefit from VAT exemptions in other EU Member States if supplies in other States do not exceed the respective domestic thresholds and total supplies in the EU do not exceed EUR 100,000.
The deadline for comments is 18 October 2024.
Ukraine
Ukraine Notes Implementation of Pillar 2 a Priority of National Revenue Strategy (proposed)
The Ukraine State Tax Service issued a release on its recent meetings with the OECD to discuss various matters including cooperation to bring Ukraine tax legislation into compliance with OECD standards. The release notes Ukraine’s intent to sign the STTR MLI as the implementation of Pillar 2 is a priority of Ukraine’s National Revenue Strategy.
Representatives of the Ministry of Finance and State Tax Service took part in technical meetings organized by the OECD
Representatives of the Ministry of Finance of Ukraine and State Tax Service of Ukraine at invitation of the Organization for Economic Cooperation and Development (OECD) took part in meetings with leadership of Center for tax policy and administration, as well as with the OECD experts.
Meetings were aimed at discussing matters related to the further improvement of the transfer pricing rules, implementation of rules for countering tax evasion practices that have direct impact on functioning of the EU and Ukrainian market, taking into account provisions of the OECD Council Recommendations on tax measures to further combat bribery of foreign officials in the international business operations.
During event, directions for further cooperation with the OECD in terms of bringing elements of tax legislation and policy of Ukraine into compliance with the main OECD standards in the international taxation were also discussed.
Global initiatives of the OECD in international taxation, Pillar 1 and Pillar 2 are primarily aimed at improving existing mechanisms for combating erosion of tax base and removal of profits from taxation.
In addition, within the framework of program, Ukrainian delegation took part in signing ceremony of the Multilateral instrument on the implementation of the controlled tax rate rule, which is part of Pillar Two (Subject to Tax Rule (STTR)). During the ceremony, it was announced the intention to complete all domestic procedures necessary to join this Multilateral Agreement, as implementation of Pillar 2 is a priority direction of the National Revenue Strategy until 2030, approved by Order of the Cabinet of Ministers of Ukraine № 1218-r as of 27.12.2023.
Ukraine’s accession to the STTR Multilateral Agreement will allow Ukraine to revise international agreements on the avoidance of double taxation in terms of adding them with a separate article “Subject-to-Tax Rule”.
Held meetings were useful for its participants and aimed at strengthening further cooperation with the OECD in terms of taxation, monitoring and implementation of the BEPS Action Plan, continuing introduction of international standards and best global practices into the tax legislation of Ukraine.
Japan
Japan Updates Q&A Document on Pillar 2 Global Minimum Tax in Relation to QDMTT Safe Harbor (approved)
On 13 September 2024, Japan’s National Tax Agency published an updated Q&A Document on the country’s implementation of the Pillar 2 Global Minimum Tax. The update includes the addition of two new questions regarding the requirements for the Qualifying Domestic Minimum Top-Up Tax (QDMTT) Safe Harbor that was included in the second set of OECD administrative guidance, which Japan adopted as part of its 2024 tax reform in Spring 2024.
The QDMTT Safe Harbor removes the need for a group to compute a jurisdictional effective tax rate (ETR) under the Pillar 2 GloBE Rules in respect of a given jurisdiction in which it operates if such jurisdiction enacts a QDMTT that satisfies the requirements of the safe harbor. The benefit of qualifying for the QDMTT Safe Harbor is that groups will only have to compute one ETR for the jurisdiction in accordance with the domestic QDMTT legislation.
Curacao
Curacao Planning to Implement Pillar 2 Global Minimum Tax (proposed)
According to recent reports, Curacao’s government is planning to introduce tax system reforms for the implementation of the Pillar 2 Global Minimum Tax (GMT). The introduction of the 15% GMT is being considered as part of the government budget policy for the 2025 fiscal year, which also includes other measures to comply with the OECD BEPS and information exchange standards, as well as measures to strengthen fiscal facilities through special economic zones. Additional details on the government plans will be published once available.
Australia
Australia Supports OECD Subject to Tax Rule as Part of Commitment to Multinational Tax Reform (approved)
The Australian Assistant Minister for Competition, Charities and Treasury, Andrew Leigh, has issued a release on Australia’s commitment to multinational tax reform with the signing of a Statement of Support for the OECD’s ‘Subject to Tax Rule’. As previously reported, the OECD’s signing ceremony for the Multilateral Convention to Facilitate the Implementation of the Pillar Two Subject to Tax Rule (STTR MLI) on 19 September 2024. Australia took part in the ceremony but did not sign or express their intent to sign the convention.
Closing the door on multinational tax avoidance
The Albanese Government is making sure that the world’s largest multinationals pay their fair share of tax, continuing our ongoing commitment to multinational tax reform, by signing a Statement of Support for the OECD’s ‘Subject to Tax Rule’.
The ‘Subject to Tax Rule’ allows developing countries to apply ‘top-up tax’ when certain types of income have not been taxed at a minimum rate.
The signing of the OECD Statement of Support follows the introduction of legislation in the Australian Parliament to ensure multinational companies pay their fair share, building on implemented measures such as:
- tightening Australia’s thin capitalisation rules to reduce multinational companies’ ability to create artificial debt and reduce their tax bill.
- creating a new disclosure law requiring Australian public companies to disclose information about their subsidiaries (including information on location of incorporation and tax residency).
- requiring tenderers for Australian Government contracts valued above $200,000 to disclose their country of tax residency.
- boosting funding for the Tax Avoidance Taskforce to bolster its work cracking down on tax dodging by multinational enterprises.
These significant steps place Australia among the lead jurisdictions working to improve the international tax system under the OECD/G20 Two Pillar Solution that was agreed in 2021.
A tax system where big multinationals pay their fair share of tax is better for our economy and all Australians. Along with the global minimum tax legislation recently introduced to Parliament, our support for the Subject to Tax Rule means that Australia has supported the OECD’s Pillar Two reforms in their entirety.
No government in Australian history has done more on multinational tax fairness than the Albanese government.
Finland
Finnish Parliament Considering Bill on Amendments to the Minimum Tax Act (proposed)
Finland’s Ministry of Finance has issued a release on draft bill HE 98/2024 vp, which was submitted to parliament on 20 September 2024 to amend the Minimum Tax Act. The Minimum Tax Act was approved at the end of 2023 for the implementation of the Pillar 2 global minimum tax in accordance with Council Directive (EU) 2022/2523 of 14 December 2022. Draft bill HE 98/2024 vp includes amendments to the Act for the incorporation of the latest OECD administrative guidance on the Pillar 2 rules, including amendments to clarify certain aspects of the law, simplify the method for calculating the minimum tax, implement the transitional UTPR safe harbor, and others. Subject to approval, the draft bill is intended to enter into force by 31 December 2024 and apply to financial years beginning on or after 1 January 2024.
OECD-Barbados-Belize-Benin-Cape Verde-Congo (DRC)-Indonesia-Romania-San Marino-Turkey
Nine Jurisdictions Sign Multilateral Instrument to Implement Pillar 2 STTR with Ten Expressing Intent to Sign (approved)
Jurisdictions: OECD-Barbados-Belize-Benin-Cape Verde-Congo (DRC)-Indonesia-Romania-San Marino-Turkey
The OECD has announced that nine jurisdictions signed the new Multilateral Convention to Facilitate the Implementation of the Pillar Two Subject to Tax Rule (STTR MLI) on 19 September 2024, with a further ten jurisdictions expressing their intent to sign. The nine signatories include Barbados, Belize, Benin, Cape Verde, the Democratic Republic of the Congo, Indonesia, Romania, San Marino, and Turkey. The ten jurisdictions that have expressed their intent to sign include Belgium, Bulgaria, Costa Rica, Mongolia, Portugal, Senegal, Seychelles, Thailand, Ukraine, and Uzbekistan.
New treaty advances Pillar Two global minimum tax Subject to Tax Rule designed to protect tax bases in developing countries
The international community took another concrete step today towards ensuring fairer and better international tax arrangements, in particular for developing countries, by further strengthening global minimum taxation with the implementation of the new Pillar Two Subject to Tax Rule.
Nine jurisdictions signed a new multilateral treaty that will allow early adopters to swiftly implement the new Pillar Two Subject to Tax Rule.
The Pillar Two Subject to Tax Rule (STTR) was agreed on a consensus basis by members of the OECD/G20 Inclusive Framework on BEPS, who also adopted an elective Multilateral Convention to Facilitate the Implementation of the Pillar Two Subject to Tax Rule (STTR MLI) to enable the swift and efficient implementation of the rule.
The Subject to Tax Rule ensures a minimum level of taxation on relevant cross-border payments and is designed to prevent circumstances where income is either taxed at very low rates or not taxed at all due to differences in tax regimes between countries.
Members of the Inclusive Framework that apply nominal corporate income tax rates below 9% to income covered by the STTR have committed to incorporate the STTR into bilateral tax agreements with members of the Inclusive Framework that are developing countries when requested to do so.
The STTR allows jurisdictions to “tax back” where defined categories of income are subject to nominal tax rates below the STTR minimum rate of 9%, and domestic taxing rights over that income have been ceded under a treaty.
The STTR forms part of a package of rules aimed at ensuring global minimum taxation of multinational businesses. The STTR complements and takes priority over other rules agreed in that package and is designed to help developing country Inclusive Framework members to protect their tax base. More than 70 developing country members of the Inclusive Framework are eligible to request inclusion of the STTR in their agreements with other members of the Inclusive Framework in accordance with the commitment on the STTR.
Developing countries are often the source of significant outbound payments that can be subject to low or no taxation. The STTR provides developing countries with a more straightforward tool to help ensure they receive their fair share of tax revenue by taxing any such payments when they are undertaxed in the recipient’s jurisdiction, helping to protect their tax base.
The STTR may be implemented by joining the STTR MLI or by bilateral amendments to tax agreements. The active participation of jurisdictions in today’s event is evidence of the strong commitment among Inclusive Framework members to the policy goals of the STTR. During the signing ceremony, 19 members of the Inclusive Framework joined the ceremony to sign, or to signal their intention to sign, the STTR MLI as soon as internal processes are finalised. The signing ceremony represents an important milestone for developing countries in the implementation of the second pillar of the Two-Pillar Solution to Address the Tax Challenges Arising from the Digitalisation of the Economy.
“Currently, developing countries lose substantial revenues to base erosion and profit shifting by multinational enterprises. They are more vulnerable to these practices than developed jurisdictions. The imminent entry into force of the Multilateral Instrument will make a real tangible difference, by enabling developing countries to request the automatic inclusion of the Subject to Tax Rule in bilateral tax treaties with developed country Inclusive Framework members, ensuring that everyone benefits from the consensus-based solutions being developed to make the global tax system fairer and work better in an increasingly globalised and digitalised world economy,” OECD Secretary-General Mathias Cormann said. “Today’s signing ceremony is a further significant milestone in the implementation of the Two-Pillar Solution to stabilise the global tax landscape, to reduce the incentive for multinationals to profit shift, curb harmful tax competition, remove inappropriate pressure on countries to offer low or no corporate tax arrangements in return for investment and help to generate important additional revenues for governments around the world.”
The text of the STTR MLI, the explanatory statement, background information, database, and positions of each signatory and party are available at https://oe.cd/sttr-mli.
US
U.S. House Republicans Express Support for Lawsuit Filed in Belgian Constitutional Court Challenging the Undertaxed Profits Rule (proposed)
U.S. House Ways and Means Chairman Jason Smith and other House Republicans have sent a letter to OECD Secretary-General Mathias Cormann to renew objections to the two-pillar solution and express support for a lawsuit filed by the American Free Enterprise Chamber of Commerce in the Belgian Constitutional Court challenging the undertaxed profits rule (UTPR). The Main text of the letter, dated 17 September 2024, is as follows:
Dear Secretary-General Cormann:
One year ago, a congressional delegation led by Members of the U.S. House Committee on Ways and Means traveled to Paris to make clear to the Organization for Economic Cooperation and Development (“OECD”) that the U.S. Congress will not consent to the global tax deal unilaterally negotiated by the Biden-Harris administration. We write today to renew our objections and express support for a lawsuit filed by the American Free Enterprise Chamber of Commerce in the Belgian Constitutional Court challenging the undertaxed profits rule (“UTPR”), which would surrender U.S. tax sovereignty, allowing unelected foreign bureaucrats to dictate tax policy, and help foreign governments arbitrarily extract hundreds of billions of dollars from the U.S. economy. The United States enacted a strong global minimum tax seven years ago, and the U.S. Congress will not replace that proven policy with the version pieced together in the OECD global tax deal. Implementation of the UTPR and other OECD policies would force the United States to forfeit $120 billion in revenue to foreign governments while offering competitive advantages to China and others. Ultimately, the Biden-Harris administration lacks the authority to impose any tax deal on Americans without the approval of the U.S. Congress – doing so would violate the United States Constitution. For these reasons, we continue to oppose the OECD global tax deal and support the efforts underway in the Belgian Constitutional Court to block implementation.
The United States Constitution expressly grants the taxing power to Congress, not to the President. Specifically, the U.S. Constitution requires that “[a]ll bills for raising revenue shall originate in the House of Representatives.” This constitutional structure makes the Committee on Ways and Means, the tax-writing committee in the U.S. House of Representatives, the only entity where changes in U.S. tax law may originate. Thus, the Biden-Harris administration’s unilateral negotiations without consultation with Congress constitutes a major overstep of its authority, with dire consequences for American workers and businesses.
The UTPR is fundamentally flawed, and it will never be effective against companies backed by entities such as the Chinese Communist Party (“CCP”). China will exploit the OECD global tax deal’s loophole for direct government subsidies, which are a hallmark of Chinese economic activity. Other countries will likely do the same, thwarting the OECD’s stated purpose of ensuring a minimum level of taxation. Ultimately, the UTPR will target U.S. workers and businesses by allowing foreign governments to claw back important U.S. tax incentives (e.g., tax credits for research and development and low-income housing) and attack the operations of American companies in third-party jurisdictions.
The United States has already implemented a strong global minimum tax. Global intangible low-taxed income (“GILTI”), has proved an effective mechanism to prevent abusive tax practices by multinational corporations. We recognize the sovereign right of countries to adopt tax rules for their own companies and for activities within their own borders. We also welcome countries’ efforts to enact their own GILTI-type global minimum taxes. Regrettably, the UTPR and other policies envisioned in the OECD global tax deal fail to adequately respect GILTI as the first and only proven global minimum tax in the world, which allows foreign governments to unfairly target Americans.
To date, less than half of the world’s economy has even considered implementing the OECD global tax deal. And even if a country like China were to move forward, there is no assurance that the CCP would play by the rules. For instance, last year it was reported that the Chinese government instructed state-owned companies to phase out their use of the big four accounting firms to address security concerns and Western influence. They were instead instructed to use auditors local to China and Hong Kong, subject to the control of the CCP. The UTPR and other aspects of the OECD global tax deal depend on transparent corporate financial reporting and home jurisdictions ensuring accurate and honest compliance. This system, however, is wholly inadequate to police a jurisdiction where the State, businesses, and auditors conspire to obscure information and avoid global minimum tax rules. Under the OECD global tax deal, bad actors are rewarded while American workers and businesses are in the crosshairs.
The U.S. Congress remains opposed to the unfair and unworkable OECD global tax deal. Should foreign governments seek to target Americans through the UTPR or other mechanisms in the OECD global tax deal, we will be forced to pursue countermeasures. We encourage and support all efforts to preserve countries’ tax sovereignty and to block implementation of unfair rules like the UTPR, including the most recent challenge filed in the Belgian Constitutional Court.
UK
UK HMRC Consults on Further Draft Guidance on Multinational Top-up Tax and Domestic Top-up Tax (approved)
UK HMRC has launched a consultation on further draft guidance on the Multinational Top-up Tax and Domestic Top-up Tax, including new and updated pages of the manual. The consultation closes on 23 October 2024.
Multinational Top-up Tax and Domestic Top-up Tax – further draft guidance
Consultation description
HMRC has published further draft guidance on Multinational Top-up Tax and Domestic Top-up Tax. This release of the draft HMRC guidance manual includes all previously released pages (including updates in some cases) in addition to newly drafted pages.
HMRC invites comments from stakeholders on this draft guidance. Publication of the manual will begin following the review of consultation responses.
A supplementary release of draft guidance will follow in due course. This will include remaining draft guidance on flow-through entities, joint ventures, the insurance sector, additional top-up amounts, and the undertaxed profits rule (UTPR).
Documents
Multinational Top-up Tax and Domestic Top-up Tax – further guidance September 2024 DRAFT
Seychelles-OECD
Seychelles to Sign Multilateral Instrument for Pillar 2 Subject to Tax Rule (proposed)
On 11 September 2024, the Seychelles Cabinet of Ministers approved the signing of the Multilateral Convention to Facilitate the Implementation of the Pillar Two Subject to Tax Rule (STTR MLI). The STTR MLI has been designed to help developing countries protect their tax base and allows for the implementation of the STTR in existing bilateral tax treaties without the need for bilateral negotiations. It includes provisions to allow source jurisdictions to “tax back” where defined categories of intra-group covered income are subject to nominal corporate income tax rates below the STTR minimum rate of 9% and domestic taxing rights over that income have been ceded under a tax treaty. For example, if a payor jurisdiction can impose a 5% withholding tax on a payment of covered income under a treaty and the recipient is subject to a 1% nominal tax rate, the payor jurisdiction retains the 5% withholding tax right and can impose an additional tax under the STTR equal to 3% of the covered income amount (9% – 5% – 1% = 3%). The STTR takes priority over the GloBE Rules (IIR and UTPR) and is creditable as a covered tax under those rules.
Bulgaria
Bulgaria to Sign Multilateral Instrument for Pillar 2 Subject to Tax Rule (proposed)
On 11 September 2024, Bulgaria’s Council of Ministers approved a letter of intent to sign the Multilateral Convention to Facilitate the Implementation of the Pillar Two Subject to Tax Rule (STTR MLI). The STTR MLI has been designed to help developing countries protect their tax base and allows for the implementation of the STTR in existing bilateral tax treaties without the need for bilateral negotiations. It includes provisions to allow source jurisdictions to “tax back” where defined categories of intra-group covered income are subject to nominal corporate income tax rates below the STTR minimum rate of 9% and domestic taxing rights over that income have been ceded under a tax treaty. For example, if a payor jurisdiction can impose a 5% withholding tax on a payment of covered income under a treaty and the recipient is subject to a 1% nominal tax rate, the payor jurisdiction retains the 5% withholding tax right and can impose an additional tax under the STTR equal to 3% of the covered income amount (9% – 5% – 1% = 3%). The STTR takes priority over the GloBE Rules (IIR and UTPR) and is creditable as a covered tax under those rules.
Portugal
Portugal’s Council of Ministers Approves Draft Law to Implement Pillar 2 Global Minimum Tax (proposed)
During their meeting held on 11 September 2024, Portugal’s Council of Ministers approved Draft Law 21/XVI/1 for the implementation of the Pillar 2 global minimum tax in accordance with Council Directive (EU) 2022/2523 of 14 December 2022, which was submitted in parliament on the same date. The draft law includes the introduction of the Pillar 2 income inclusion rule (IIR) and the undertaxed payment/profit rule (UTPR) in order to ensure a minimum tax level of 15% for MNE groups with annual consolidated revenue of at least EUR 750 million in at least two of the last four immediately preceding financial years. The draft law also provides for the introduction of a qualified domestic minimum top-up tax (QDMTT).
Subject to approval by parliament and publication in the Official Gazette, the IIR and QDMTT will apply to fiscal years beginning on 1 January 2024 and the UTPR will generally apply to fiscal years beginning on or after 1 January 2025. However, the UTPR will apply to tax years beginning on or after 1 January 2024 in respect of constituent entities of groups whose ultimate parent companies are located in an EU Member State that has exercised the option for a deferred application of the IIR and UTPR as allowed by Article 50 of the Directive.
Singapore
Singapore Parliament Considering Legislation for Pillar 2 Global Minimum Tax and 2024 Budget Measures (proposed)
The Singapore Parliament is considering legislation for the introduction of the Pillar 2 global minimum tax and for the implementation of tax measures announced as part of the 2024 Budget Statement (previous coverage), including:
- Multinational Enterprise (Minimum Tax) Bill 2024 (Bill No. 33/2024); and
- Income Tax (Amendment) Bill 2024 (Bill No. 32/3024).
Both bills were introduced on 9 September 2024 and have passed their first reading. The second reading of the bills will be completed at the next available sitting.
United Nations
Independent Commission for the Reform of International Corporate Taxation Recommends UN STTR Over OECD Version (approved)
The Independent Commission for the Reform of International Corporate Taxation (ICRICT) has issued a report comparing the OECD and UN versions of a Subject to Tax Rule (STTR). Both versions essentially allow a source state to impose a minimum level of taxation on payments under tax treaties where the payment is subject to low or no taxation in the state of the payee. In the report, the ICRICT recommends that developing companies introduce the UN STTR in their tax treaties.
INTRODUCTION
The past few decades have seen a rapid increase in the amount of double tax treaties signed between countries, from a global number of around 500 to more than 3,000. Initially proposed to prevent double taxation in different jurisdictions, today these treaties have become instruments for reinforcing global inequality, by reducing the ability of developing countries to raise revenues.
The resulting network of bilateral tax treaties is skewed towards the needs of resident countries (home to multinational companies, and their intermediaries). This occurs through rules that reduce withholding tax rates on intra-group payments (e.g. interests, dividends, royalties) that flow from countries where the economic activity occurs (source countries) to the home countries of multinationals or to offshore intermediaries, which can be located in low-tax jurisdictions.
The ability of multinationals to structure their intra-group payments to take advantage of low-tax jurisdictions often results in low or double non-taxation and a loss of revenues for the source country.
In order to ensure a minimum level of taxation of intra-group payments, the G20/OECD Inclusive Framework (G20/OECD IF) and the United Nations Committee of Experts on International Tax Cooperation (UNTC) have separately developed a Subject to Tax Rule (STTR). This is a minimum tax that applies on a transactional basis to payments from source States that are subject to low nominal tax rates in the State of the payee.
The STTR is based on an understanding that where, under a tax treaty, a source State has ceded taxing rights on certain outbound payments, it should be able to recover some of those rights when the income in question is taxed (if at all) in the State of the payee (i.e. the residence State) below a certain rate.
Including a STTR in all treaties would allow source countries to tax income if the other country does not tax it at an agreed-upon minimum rate, enabling (mostly developing) countries to tax income that is currently avoiding taxation.
However, the STTR developed by the UNTC (UN STTR) and that developed by the G20/OECD IF (OECD STTR) are different in significant ways. Countries, especially developing countries, must carefully consider these before adoption and implementation.
Members of the G20/OECD IF have been invited to sign the Multilateral Instrument to give effect to the STTR on 19 September 2024.
As a Commission, we believe that the UN STTR is much more beneficial for countries than the OECD STTR, particularly for developing countries, both in terms of administration and potential additional revenue collection.
We therefore recommend that developing countries introduce the UN STTR in their tax treaties.
Switzerland
Swiss Federal Council Decides to Bring the Pillar 2 Income Inclusion Rule into Force in 2025 (approved)
The Swiss Federal Council has announced its decision to bring the Pillar 2 income inclusion rule (IIR) into force with effect from 1 January 2025. The Swiss supplementary tax (QDMTT) has already entered into force from 1 January 2024, while the undertaxed profits rule (UTPR) will not be brought into force for the time being.
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IIR international supplementary tax to come into force in 2025
Bern, 04.09.2024 – During its meeting on 4 September 2024, the Federal Council decided to bring the income inclusion rule (IIR) into force with effect from 1 January 2025. This international supplementary tax will complement the Swiss supplementary tax (QDMTT) already introduced in 2024. Both tax rules will ensure that tax receipts stay in Switzerland, rather than flowing abroad, and provide legal certainty.
In 2023, the people and the cantons voted in favour of the Federal Council introducing the OECD/G20 minimum tax rate in Switzerland. The main aim is to prevent Switzerland from foregoing tax receipts in favour of foreign countries. The Swiss supplementary tax (QDMTT), which the Federal Council introduced in 2024, serves this purpose (see also box). During its meeting on 4 September 2024, the Federal Council also decided to bring the income inclusion rule (IIR) into force in 2025. With this international supplementary tax, the profits of foreign subsidiaries of Swiss corporate groups, as well as those of intermediate holding companies of foreign corporate groups, are taxed at 15%, provided the corporate group’s global annual turnover is at least EUR 750 million.
If Switzerland did not bring the IIR into force, other jurisdictions could tax these foreign profits in accordance with the OECD/G20 minimum taxation rules by applying the second international supplementary tax, the undertaxed profits rule (UTPR). The vast majority of EU member states, as well as the United Kingdom, Canada and Australia, are planning to apply the UTPR from 2025 onwards, following their introduction of both the IIR and the QDMTT in 2024.
By bringing the IIR into force, Switzerland can secure receipts which can then be used to strengthen the country’s attractiveness as a business location. Moreover, the Federal Council will thereby provide legal certainty in Switzerland. In practice, the companies affected can be spared a multitude of tax procedures in jurisdictions that apply the UTPR.
Receipt estimates for the IIR involve a high degree of uncertainty. Roughly speaking, they could amount to between CHF 500 million and CHF 1 billion, whereby between CHF 125 million and CHF 250 million would go to the Confederation based on the constitutional allocation key, and between CHF 375 million and CHF 750 million would go to the cantons.
No UTPR in Switzerland for the time being
The Federal Council has decided not to bring the UTPR into force for the time being, as it believes that the risks associated with such a move would outweigh the revenue potential of a UTPR. Moreover, the UTPR is subject to criticism from a legal standpoint. When weighing up the interests at stake, the Federal Council relied on an expert opinion prepared by Prof. René Matteotti from the University of Zurich. The FDF will continue to keep a very close eye on international developments with respect to the implementation of the OECD/G20 minimum tax rate.
Glossary
The OECD/G20 minimum taxation rules (QDMTT, IIR and UTPR) apply to international corporate groups with global annual turnover of at least EUR 750 million. The measures are applied in sequence.
Firstly, the QDMTT ensures minimum taxation for affected corporate groups or business units in their home jurisdiction. It has been in force in Switzerland since 1 January 2024. Secondly, the IIR also ensures minimum taxation for all foreign business units of a corporate group at the ultimate parent entity (or an intermediate holding company) if the business units in question are not subject to minimum taxation abroad. As a catch-all measure, the UTPR ensures minimum taxation for all business units of a corporate group, including in the case of undertaxed profits that are subject to neither a QDMTT nor an IIR.
Brazil
Update – Brazilian Government Considering Tax Increases and Global Minimum Tax to Increase Revenue (proposed)
As previously reported, the Brazilian government is looking to increase tax revenue to cover the cost of the partial extension of the optional regime for social contributions on gross income (revenue) (CPRB) recently approved by the Senate. This includes plans to increase the withholding tax rate on interest on net equity (JCP) and the rates of social contribution on profits (CSLL). A draft bill for this purpose was submitted in the National Congress on 30 August 2024. With respect to JCP, the draft bill would increase the withholding tax rate on JCP from 15% to 20%. With respect to CSLL, the draft bill would temporarily increase the CSLL rates as follows until the end of 2025:
- Increase from 20% to 22% for banks;
- Increase from 15% to 16% for private insurance companies, capitalization firms, and brokerages; and
- Increase from 9% to 10% for other companies.
In addition to the JCP and CSLL changes, the government is also considering measures to increase the taxation of tech companies and to introduce a 15% global minimum tax if there is a revenue shortfall. Additional details of these measures will be published once available.
Singapore
Singapore Publishes Summary of Responses to Consultation on Legislation for Pillar 2 Global Minimum Tax and 2024 Budget Measures (proposed)
Singapore’s Ministry of Finance has published the Summary of Responses to Public Consultation on the Draft Multinational Enterprise (Minimum Tax) Bill and Income Tax (Amendment) Bill 2024. As previously reported, the draft legislation provides for the introduction of the Pillar 2 global minimum tax and for the implementation of tax measures announced as part of the 2024 Budget Statement (previous coverage).
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Summary of Responses to Public Consultation on the Draft Multinational Enterprise (Minimum Tax) Bill and Income Tax (Amendment) Bill 2024
31 Aug 2024
The Ministry of Finance (“MOF”) invited the public to provide feedback on the draft Multinational Enterprise (Minimum Tax) Bill and subsidiary legislation, as well as the draft Income Tax (Amendment) Bill 2024 from 10 June to 5 July 2024.
Multinational Enterprise (Minimum Tax) Bill
2. The draft Multinational Enterprise (Minimum Tax) Bill and the subsidiary legislation will implement a Domestic Top-up Tax (“DTT”) and the Income Inclusion Rule (“IIR”) under Pillar Two of the Base Erosion and Profit Shifting (“BEPS”) 2.0 initiative, as announced in the 2024 Budget Statement.
3. MOF received feedback on policy, technical and administration aspects of the DTT and IIR, and their interactions with the general corporate income tax regime. MOF’s responses to the key feedback are in Annex A.
4. As certain aspects of the Pillar Two rules are still being developed, MOF and the Inland Revenue Authority of Singapore (“IRAS”) will continue to monitor ongoing international developments and refine the parameters of our income tax regime where necessary.
Income Tax (Amendment) Bill 2024
5. The draft Income Tax (Amendment) Bill 2024 proposed legislative amendments to the Income Tax Act 1947 (“ITA”) to effect: (a) tax measures announced in the 2024 Budget Statement; and (b) changes arising from MOF’s periodic review of Singapore’s income tax regime.
6. MOF received feedback on the proposed legislative amendments, in particular, on the following measures:
- Introduction of the Refundable Investment Credit (“RIC”);
- Introduction of an alternative basis of tax where the qualifying income of shipping entities will be taxed by reference to net tonnage; and
- Clarification of the tax treatment of real estate investment trust (“REIT”) units held by REIT managers.
7. MOF’s responses to the key feedback are in Annex B.
8. We thank all respondents for their feedback.
