GLOBAL MINIMUM CORPORATE TAX ONE STEP CLOSER
On October 8, 2021, 137 OECD/G20 members agreed in principle to a two-pillar international tax package, with a view that the new rules will come into effect at the global level in 2023-24. Pillar One ensures that Multinational Enterprises (MNEs) with revenues exceeding EUR 20 billion declare profits and pay tax in the jurisdiction where they do business. Pillar Two will require MNEs with annual revenue above EUR 750 million to pay a minimum effective corporate tax rate of 15% in every jurisdiction in which they operate.
On December 12, 2022, the EU member states agreed to comprehensive legislative measures that will implement the 15% corporate minimum tax rate across the bloc in 2024. Last month, the UK said it would start collecting the tax in 2024. In the U.S., the Biden administration failed in its attempt to get the plan through Congress, but Congress did pass a different 15% minimum tax on corporations in the U.S. with at least $1 billion in annual book income reported to shareholders on financial statements. This tax is different in several ways than the OECD minimum tax (for example, it does not calculate taxable income on a country-by-country basis).
A minimum effective tax rate is designed to stop the “race to the bottom” and reduce incentives for MNEs to engage in profit shifting.
A summary is available here: Global Tax Agreement: Details & Analysis | EU Global Minimum Tax (taxfoundation.org)
The Government of Canada’s Fall Economic Statement (November 2022) confirms Canada’s intention to enter a multilateral treaty to implement Pillar One in the first half of 2023. It continues to work with its international partners to develop an implementation framework for Pillar Two.