What is this all about?
Pillar One aims to ensure a fairer distribution of profits and taxing rights of the largest multinational enterprises among countries. It intends to reallocate (a part of) the profit of these enterprises to the jurisdictions where sales arise irrespective of the physical presence in those jurisdictions. Currently, the proposed rules remain vague, and it is still not clear if and how Pillar One will be implemented.
Pillar Two may have a more far-reaching impact to Belgian multinationals. It puts a floor on corporate income tax competition through the introduction of a global minimum corporate tax rate of 15 percent. These minimum taxation rules would apply to all multinational enterprises with an annual revenue over 750 million euros.
The rules are rather complex. They basically allow the country where the ultimate parent company is located (in Belgium in case of a Belgium multinational) to directly tax this parent company on income that is generated in a foreign country to the extent that this foreign income was taxed at an effective tax rate lower than 15 percent. Moreover, the rules are designed in such way that if the country where the ultimate parent company is located, does not implement these rules, or when intercompany payments are made to the ultimate parent company that are subject to a low level of tax (at the level of the ultimate parent company), countries where the MNE is active in, can claim this so-called top-up tax. In addition, rules will also be implemented to subject certain payments to a withholding tax if the beneficiary of the payment is not subject to minimum level of tax. These rules are likely to trigger changes in local country rules and rates, especially in those the countries that may lose tax income or business.
Tax incentives provided to encourage economic activity, such as the Belgian innovation deduction, may (partly) be accommodated through a carve-out rule. However, it is expected that these rules will put significant pressure on these types of incentive regimes and hence companies benefitting from tax incentives in general should closely monitor the impact of these new rules.