OECD/G20 BEPS 2.0 news

The OECD’s model rules for a 15 percent global minimum effective tax rate have just published. The model will form the basis for national rules and an EU directive.  The rules define the scope and set out the mechanism for the so-called Global Anti-Base Erosion (GloBE) rules under Pillar Two, which will introduce a global minimum corporate tax rate set at 15 percent. The minimum tax will apply to MNEs with revenue above EUR 750 million and is estimated to generate around USD 150 billion in additional global tax revenues annually. 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. 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. A public consultation event on the implementation framework will be held in February and on the Subject to Tax Rule in March. For full details of today’s publication see the OECD’s website.

The OECD's Forum on Tax Administration (FTA) met on 16-17 December to discuss the implementation of the Two-Pillar solution under BEPS 2.0, ongoing responses to the global COVID-19 pandemic, digital transformation and capacity building.  FTA members agreed to prioritise support for implementation of the Two-Pillar Solution, including the possible further development of tax certainty tools to help prevent disputes and reduce burdens.  The FTA also discussed developing a new strategic framework covering both digitalisation and digital transformation to inform both domestic reforms and international collaboration.  The FTA also plan to prioritise tax capacity building initiatives to assist developing countries with the implementation of the Pillars and the further digitalisation of tax administration. The FTA also released two reports: a new Digital Transformation Maturity Model covering the key building blocks of future tax administration; and, together with the African Tax Administration Forum (ATAF), a report on Supporting the Digitalisation of Developing Country Tax Administrations. For more details, including on the reports published since the 2020 Amsterdam Virtual Plenary meeting, and the FTA's future work programme, see the communiqué released at the close of the meeting.

The Department of Finance launched a public consultation on the OECD’s international tax proposals. Chartered Accountants Ireland under the auspices of the CCAB-I will respond to the consultation. We will reflect the unique professional experience of accountants on the issues raised in this important consultation.  With that in mind we invite members to respond to this survey before 16 August.  The Department of Finance notes that the consultation will be helpful in identifying the challenges and opportunities of the proposals in respect of Ireland’s corporate tax code and broader industrial policy.   On launching the consultation, Minister Donohoe said: ‘I believe it is in the interest of all concerned to achieve an equitable, ambitious and sustainable agreement at the OECD on the international tax architecture. It is essential as we emerge from the Covid-19 pandemic that the international tax system provides the necessary certainty and stability to support growth and investment, and Ireland is committed to playing our part in reaching the comprehensive agreement’. “I am committed to ensuring that Ireland’s tax policy continues to support economic growth and prosperity, and in this respect I would welcome the views of the public and key stakeholders on the key aspects of the OECD proposals” The consultation period runs from 20 July to 10 September.  For more details see the Department of Finance’s website. 

In a recent podcast issued by the OECD, Pascal Saint-Amans, Director of Tax Policy at the OECD, notes that a minimum global corporate tax rate may be “a bit above” a rate of 15 percent as the final details of the OECD/G20 tax reform measures are being finalised for conclusion in October.  According to the OECD, Pillar One is projected to generate $100 billion in tax revenue for market jurisdictions and $150 billion is projected to be raised under Pillar Two proposals for a minimum global tax rate of 15 percent.  For full details, listen to the 20-minute podcast. 

130 countries and jurisdictions, representing over 90 percent of global GDP, joined a new two-pillar plan to reform international taxation rules.  A group of the Inclusive Framework’s 139 members have not yet joined the Statement.  The remaining elements of the framework, including the implementation plan, will be finalised in October.   The two-pillar package is the outcome of negotiations coordinated by the OECD.  It aims to ensure that large Multinational Enterprises (MNEs) pay tax where they operate and earn profits while adding certainty and stability to the international tax system. Pillar One aims to re-allocate some taxing rights over MNEs from their home countries to the markets where they have business activities and earn profits, regardless of whether firms have a physical presence there. Pillar Two seeks to put a floor on competition over corporate income tax, through the introduction of a global minimum corporate tax rate of at least 15 percent.  Under Pillar One, taxing rights on more than USD 100 billion of profit are expected to be reallocated to market jurisdictions each year. The global minimum corporate income tax under Pillar Two - with a minimum rate of at least 15 percent - is estimated to generate around USD 150 billion in additional global tax revenues annually. Additional benefits will also arise from the stabilisation of the international tax system and the increased tax certainty for taxpayers and tax administrations.  Full details are set out in the OECD’s statement agreement of 1 July.  You can also see the list of the  130 countries and jurisdictions who signed up to the current plans. 

Last Friday, the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) announced that its 129 members have adopted a Programme of Work setting out a process for agreeing a new global consensus for taxing multinational enterprises (MNEs). The document, which calls for intensifying international discussions around two main pillars, was approved last week at a meeting of the Inclusive Framework. It will be presented by the OECD to the G20 Finance Ministers for endorsement on 8 and 9 of June in Japan. This Programme of Work, which is a follow on from the consultation process undertaken earlier this year, sets out a roadmap which includes two pillars of work. The first pillar will focus on solutions for determining where a company should pay tax and on what basis as well as what portion of profits should be taxed where clients or users are located. The second pillar of work is intended to address remaining issues identified by the OECD/G20 BEPS initiative and explores the design of a minimum tax for MNEs. The OECD said that there is a large amount of work to do to reach a consensus-based long-term solution, adding that they hope to reach a unified solution before the end of 2019 to ensure adequate time for completion of work during 2020.

Last week we reported on how the OECD/G20 Inclusive Framework on BEPS announced its Programme of Work setting out a process for agreeing a new global consensus for taxing multinational enterprises. The Programme was endorsed this weekend in Japan when it was presented by the OECD to the G20 Finance Ministers.

The Minister for Finance, Paschal Donohoe TD, attended the meeting of G7 Finance Ministers, held last Friday and Saturday in London, in his capacity as President of the Eurogroup. At the meeting, the Ministers considered coordinated approaches to key economic challenges facing economies emerging from the Covid crisis. Paschal Donohoe provided his departing comments in advance of the meetings through a press release. The G7 nations endorsed a global minimum corporation tax of at least 15 percent at the meetings in London. Further information is available on the meeting of the G7 nations in our International tax news.

The principles of the two Pillar global solution to tackle the tax challenges arising from the digitalisation of the global economy were agreed by the G7 Finance Ministers. Under Pillar One, large multinationals will be required to pay tax in the countries where they operate – and not just where they have their headquarters. Under Pillar Two, the G7 agreed to the principle of a global minimum corporation tax rate of at least 15 percent. Chairing the G7 Finance Ministers meeting in London, Rishi Sunak said ‘These seismic tax reforms are something the UK has been pushing for and a huge prize for the British taxpayer - creating a fairer tax system fit for the 21st century. This is a truly historic agreement and I’m proud the G7 has shown collective leadership at this crucial time in our global economic recovery.’ Pillar One The Finance Ministers agreed to the principles of the OECD’s two Pillar proposals. Under Pillar One, the largest and most profitable multinationals will be required to pay tax in the countries where they operate – and not just where they have their headquarters. The rules would apply to global firms with at least a 10 percent profit margin – and would see 20 percent of any profit above the 10 percent margin reallocated and then subjected to tax in the countries they operate. This will mean more tax for countries with big markets and less for countries like Ireland where international headquarter operations are based. The potential cost to the Irish exchequer is an estimated €2.2-€2.4 billion, around one fifth of total corporate tax revenue. Pillar Two Under Pillar Two, the G7 also agreed to the principle of at least 15 percent global minimum corporation tax operated on a country by country basis. Minister for Finance, Paschal Donohoe, said he would continue to argue for Ireland’s 12.5 percent corporate tax rate in negotiations with EU member states and the Unites States. US Treasury commentary In a press release from the US Department of the Treasury following the G7 meeting, they have stated their support for the 15 percent global minimum tax rate and to the Pillar One proposals. The press release also states that the US will provide appropriate coordination between the application of the new international tax rules and the removal of all Digital Services Taxes. Next Steps The agreement will now be discussed in further detail at the G20 Financial Ministers & Central Bank Governors meeting in Venice July.