On Monday 20 December, the OECD published model rules for the national implementation of Pillar II (minimum taxation) of the international reform on the taxation of multinational enterprises (see EUROPE 12808/2).
Under the terms of the agreement, which has been agreed by 137 countries to date, multinationals with a consolidated annual turnover in excess of €750 million will be taxed at a minimum rate of 15%.
After defining the MNEs that fall within the scope of the international agreement, the OECD Model Rules describe how to calculate the effective tax rate of a relevant group in each country where it operates.
The tax is thus calculated on the basis of the taxable profit, taking into account the wide range of existing tax systems. Rules are also provided to address timing differences that arise when a profit or loss is recognised in a different year.
Once the effective tax rate is calculated (tax divided by profit, aggregated jurisdiction by jurisdiction), the OECD rules then determine the amount of additional tax that is due. This is the difference between the minimum rate of 15% and the effective tax rate in the jurisdiction. The top-up tax percentage is then applied to the profit in the jurisdiction, after deducting the portion of profit related to tangible assets and payroll.
The final negotiations at the OECD on Pillar II had indeed focused on the possibility of deducting from the tax base amounts linked to “substance criteria”. An amount of income representing 5% of the net value of the tangible assets (8% in the first ten years) and of the payroll of the companies concerned 8% of the net value of the tangible assets (10%) will be excluded.
Two rules will determine which entity of the MNE will be liable for the top-up tax. The main rule is that the minimum tax is paid at the level of the parent entity. A safety net is introduced to ensure that the minimum tax is paid, even where the low-taxed entity is held through a chain of ownership that results in that profit escaping the main rule. An adjustment (e.g. disallowance of deduction) will then be made which increases the tax at the level of the subgroup entity taking into account its assets and employees.
“The model rules published today are a cornerstone in the development of a two-pillar solution and convert the basis of the political agreement reached in October into enforceable rules”, said Pascal Saint-Amans, Director of the OECD’s Centre for Tax Policy and Administration, in a statement.
See applicable OECD rules: https://bit.ly/3yRDeR6
Transposition in the EU
On Wednesday 22 December, the European Commission will present its legislative proposal to transpose Pillar II of the OECD agreement into EU law.
According to our information, the EU institution will go one step further than the OECD agreement by including large purely domestic groups in the scope of the minimum taxation.
France, which will hold the Presidency of the EU Council in the first half of 2022, wants the proposed directive to be adopted unanimously by the Member States before June. The stated aim is to be able to apply the international reform in the EU from 2023. (Original version in French by Mathieu Bion)