Update on Base Erosion and Profit Shifting Pillar 2 Agreement – December 2021 Update on Base Erosion and Profit Shifting Pillar 2 Agreement – December 2021 Update on Base Erosion and Profit Shifting Pillar 2 Agreement – December 2021

On 20 December 2021, the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting, involving 137 countries, released Model Globe Rules under Pillar 2.  The document contains the rules for a Global Minimum Tax at 15% for Multi-national Enterprises with a turnover of more than €750 million.  It is anticipated that a document providing further commentary on the rules will be released early next year.  The model rules released on 20 December differ from the original Blueprint on Pillar 2 from October 2020 in significant ways.

The model rules have added a new concept of domestic top-up tax.  This allows a jurisdiction to introduce a rule, which effectively duplicates the model rules for top-up tax, but ensures that the tax is collected by that local jurisdiction and is not ceded to another jurisdiction under either the Income Inclusion Rule or the Under-Taxed Payments Rule.  Assuming low-tax jurisdictions take this path, it may reduce the complexity of the rules in many circumstances while achieving the goal of the Pillar 2 project of providing a floor for tax competition.

Also excluded from this Pillar 2 package are the proposals for a Subject to Tax Rule which is proposed to apply to certain payments including interest and royalties where the nominal tax rate on a payment falls below a minimum rate of 9%.  The final scope of these rules is yet to be determined and expected in early 2022.

A copy of the KPMG’s insights can be accessed via the above link.

Should you have any questions or require further clarification, please do not hesitate to email any of our Executive Directors, Directors, Associate Directors or Managers whom you are accustomed to dealing with or who are responsible for the tax affairs of your organisation.