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OECD releases statement in October finalizing certain quantitative parameters including the global minimum tax rate be set at 15%, 25% of the residual profits of an in-scope MNEs be allocated to the market jurisdictions and the tax rate for the subject to tax rule be at 9%
On 8 October 2021, at the conclusion of a virtual meeting of the OECD/G20 Inclusive Framework on BEPS (the Inclusive Framework), the OECD released a statement reflecting the agreement reached by 136 out of the 140 Inclusive Framework members on core design features of the two-pillar solution developed in the BEPS 2.0 project (October Statement).
The October Statement describes agreed components with respect to both pillars of the project:
- Pillar One on revisions to nexus and profit allocation rules
- Pillar Two on new global rules that seek to introduce a minimum tax
The October Statement builds on the statement released in July 2021, providing further specificity on several key parameters. In particular, the amount of residual profit to be re-allocated to market jurisdictions under Pillar One has now been set at 25% (as compared to 20-30% as provided in July) and the rate for the minimum tax under Pillar Two has now been agreed at 15% (as compared to “at least 15%” as provided in July). In addition, other thresholds, rates and administrative mechanisms are covered in the October Statement.
Additional substantive and technical details for key elements of both pillars have not yet been released, including revenue sourcing rules, adjustments for the tax base determination, design of marketing and distribution safe harbor rules, and dispute prevention and resolution rules for Pillar One; as well as rules to address timing differences, simplification mechanisms and transition rules for Pillar Two.
The October Statement includes an annex with further information on plans for implementation, providing generally for entry into effect in 2023, with the exception of the Pillar Two Undertaxed Payment Rule (UTPR) that is to enter into effect in 2024.
The G20 Finance Ministers are scheduled to consider the outcome of the Inclusive Framework meeting at their meeting in Washington on 12-13 October 2021.
Please refer to this Hong Kong Tax alert for details and its implications for Hong Kong.