According to Law360, new international minimum tax rules would apply to global companies with revenue above €750 million for at least two out of four years, according to a text released Monday by the Organization for Economic Cooperation and Development.
The scope is in line with a draft of the rules, which reflect the minimum
tax agreed to in principle by
nearly 140 jurisdictions in October, reported on by Law360 last week.
Countries at that time also agreed on the outlines of an additional so-called
pillar that redistributes some tax revenue of the world's largest corporations.
"The model rules released today are a significant building block in the development of a two-pillar solution, converting the foundations of a political agreement reached in October into enforceable rules," said Pascal Saint-Amans, head of the OECD's Center for Tax Policy and Administration, in a news release. Guidelines on implementing the reallocation of taxing rights, known as Pillar One, are expected next year.
The rules for Pillar Two include a 15% minimum effective tax rate on a country-by-country basis, which is designed to ensure that large multinational companies can't escape tax regardless of where they do business. The OECD estimates that the new rules will generate about $150 billion in additional global tax revenues per year.
The minimum tax rules create a "top-up tax" that would apply to profits in a jurisdiction when its effective tax rate drops below the 15% minimum rate. They are due to be transposed into countries' domestic law in 2022 and enter into force in the following year. The European Union is due to present its version of the minimum tax law Wednesday, which will then likely need to be agreed to unanimously by all member countries to become law. Other jurisdictions are expected to introduce similar legislation next year.
The OECD minimum tax rules don't cover all forms of corporate income. They allow for exclusions, or carveouts, of 5% of the carrying value of assets in a jurisdiction. These assets include property, plant and equipment as well as natural resources, leased rights of tangible assets and licenses received from the government. The carveout doesn't include the value of property that is held for sale, lease or investment, the document said.
The OECD said it would release commentary on the model rules and address how they will coexist with the U.S. global intangible low-taxed income rules early next year. Countries working under the auspices of the OECD are working on a model for the "subject to tax" rule, which targets intercompany payments designed to shift profits to low-tax jurisdictions. The OECD plans a public forum on the implementation of Pillar Two in February and one on the subject-to-tax rule in March, the news release said.
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