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Tax Update | OECD Communiqué

Insight 5 July 2021

Tax Update | OECD Communiqué

On 1 July 2021, 130 countries within the OECD agreed to change key aspects of international taxation. As it stands, this new framework would be set for a 2023 implementation and is estimated to generate $150Bn in additional annual tax revenue.

The Communiqué, which can be found here, focuses on the changes in two pillars.

Pillar One: Allocation of tax for countries in which multinationals operate

Taxation:

  • Minimum 20%-30% of profit.

Conditions:

  1. Multinational enterprises (MNEs) with turnover above €20Bn and exceeding 10% profit margin
    a. The €20Bn threshold is expected to drop (subject to prior review) to €10Bn after seven years of the agreement coming into force.
  2. Removal of all digital services taxes.
  3. Extractives (e.g. oil and gas) and regulated financial services are excluded.

Pillar Two: Creation of a global minimum tax rate

Taxation:

  • At least 15% under the Global anti-Base Erosion Rules (GloBE rules).

Conditions:

  • Applies to MNEs that meet the €750mn threshold determined under BEPS Action 13.
  • Government entities, international organisations, non-profit organisations, pension funds or investment funds that are Ultimate Parent Entities (UPE) of an MNE Group or any holding vehicles used by such entities, organisations or funds are not subject to the GloBE rules.
  • The international shipping income is excluded from the GloBE rules.
  • Deduction of 7.5% (5% after 5 years) of income for tangible assets and payroll costs under the GloBE rules.
  • Minimum tax rate under the Subject To Tax Rule (STTR) will be set between 7.5% and 9%.

Hurdles

  • Agreement not accepted by several countries such as Ireland or Hungary.
  • Potential reluctance from the Republican Congress

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Paul Séjournant Associate Director, Product Development - United Kingdom
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Brijesh Patel Global Head of Corporate Services - Singapore
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