Pillar two model rules for domestic implementation of 15% global minimum tax: OECD
Recently Organization for Economic Co-operation and Development (OECD) has issued Pillar Two model rules for domestic implementation of 15% Global Minimum Tax (GMT).
- These model rules provide a clear framework for implementing the two-pillar solution. These are aimed at helping governments address tax challenges arising from digitization and globalization of the economy.
- It is to be noted that in the year 2021, 137 countries (including India) had agreed on a two-pillar solution. It was adopted under the inclusive framework created by the Organization for Economic Co-operation and Development (OECD)/G20 on Base erosion and profit shifting (BEPS).
- BEPS is used to describe tax planning strategies that take advantage of the inconsistencies and gaps that exist between different jurisdictions’ tax laws.
- The model rules determine the mechanism for the Global Anti-Base Erosion Rules (GloBE). These rules will help countries to incorporate GIoBE rules into domestic law in 2022.
- The purpose of the GIoBE rules is to ensure that groups of large multinational enterprises (MNEs) pay this minimum level of tax on income earned in each jurisdiction in which they operate.
- These rules will determine the ‘top up tax’ to be applied to profits earned in any jurisdiction, whenever the effective tax rate is less than the minimum rate of 15%.
- GMT will apply to MNEs with revenues in excess of EUR 750 million. This is expected to generate approximately $150 billion in additional global tax revenue annually.
The proposed solution consists of two components:
- Pillar One ensures that large MNEs, including digital companies, will pay taxes wherever they operate and generate profits.
- Pillar Two tries to ensure that large MMEs pay at least one GMT at the rate of 15% currently. This payment will be independent of the jurisdiction where the benefit can be recorded.
Source – The Hindu