On July 1, 2021, the OECD announced that 130 countries, representing more than 90% of the global GDP, including the United States, have agreed to join the two-pillar approach for global tax reform to ensure that multinational businesses pay their “fair share” in the current globalized and digital economy.
The specifics of the new framework and implementation plan of the two-pillar approach is scheduled to be finalized in October 2021 with effective implementation in 2023.
The new framework will apply to large Multination Enterprises (“MNEs”) to ensure that the MNEs will be subject to tax where they operate and earn profits as opposed to where they are headquartered.
Pillar One aims to re-allocate taxing rights over MNEs from the countries where they may have physical presence to the jurisdictions where they have a market and generate revenue. An in-scope MNE for Pillar One is defined as an MNE with global sales in excess of 20 billion euro and a profitability rate above 10%. The framework also provides that the global sales threshold would be reduced. In addition, Pillar One will also provide for coordination of international tax rules across all jurisdictions and the repeal of any Digital Service Taxes or similar taxes.
Pillar Two will establish a global minimum tax rate of 15% for MNEs. An in-scope MNE under Pillar Two generally includes any MNE with revenues over 750 million euro.
Additionally, the proposed framework provides for a dispute resolution mechanism to prevent double taxation.
Stay tuned as this story develops for updates from Withum’s International Team.
Author: Calvin Yung | [email protected]
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