As previously agreed in outline by G7 ministers, the two-pillar package builds on much of the work co-ordinated by the OECD over the last decade and ‘aims to ensure that large multinational enterprises (MNEs) pay tax where they operate and earn profits, while adding certainty and stability to the international tax system’.
Pillar one aims to ensure a fairer distribution of profits and taxing rights among countries with respect to the largest MNEs, including digital companies – re-allocating taxing rights over MNEs from their home countries to the markets where they have business activities and earn profits.
Pillar two seeks to put a floor on competition over corporate income tax, through the introduction of a global minimum corporate tax rate that countries can use to protect their tax bases.
In a press release, the Irish government has expressed support for pillar one, on the basis that the tax system needs to follow the evolution of the way business is conducted, noting: ‘There will be a cost to Ireland for this in terms of reduced corporation tax receipts, but overall pillar one will bring stability and certainty to the international tax framework and will help underpin economic growth from which all can benefit.’
Ireland’s Minister for Finance, Paschal Donohoe, commented that, although Ireland wants to see a comprehensive, sustainable and equitable agreement on the international tax rules, it was ‘not in a position to join the consensus on the agreement and specifically a global minimum effective tax rate of at least 15%’.
Research by the Oxford University Centre for Business Taxation suggests that ‘only 78 of the world’s 500 largest companies will be affected’ by Pillar One, with the amount allocated to local markets (‘Amount A’) potentially reduced by around 50% by the exclusion of financial companies.
The Inclusive Framework aims to reach final decisions on the design of the framework by October 2021. Subject to ongoing discussions, both pillars are expected to be brought into effect in 2023.
As previously agreed in outline by G7 ministers, the two-pillar package builds on much of the work co-ordinated by the OECD over the last decade and ‘aims to ensure that large multinational enterprises (MNEs) pay tax where they operate and earn profits, while adding certainty and stability to the international tax system’.
Pillar one aims to ensure a fairer distribution of profits and taxing rights among countries with respect to the largest MNEs, including digital companies – re-allocating taxing rights over MNEs from their home countries to the markets where they have business activities and earn profits.
Pillar two seeks to put a floor on competition over corporate income tax, through the introduction of a global minimum corporate tax rate that countries can use to protect their tax bases.
In a press release, the Irish government has expressed support for pillar one, on the basis that the tax system needs to follow the evolution of the way business is conducted, noting: ‘There will be a cost to Ireland for this in terms of reduced corporation tax receipts, but overall pillar one will bring stability and certainty to the international tax framework and will help underpin economic growth from which all can benefit.’
Ireland’s Minister for Finance, Paschal Donohoe, commented that, although Ireland wants to see a comprehensive, sustainable and equitable agreement on the international tax rules, it was ‘not in a position to join the consensus on the agreement and specifically a global minimum effective tax rate of at least 15%’.
Research by the Oxford University Centre for Business Taxation suggests that ‘only 78 of the world’s 500 largest companies will be affected’ by Pillar One, with the amount allocated to local markets (‘Amount A’) potentially reduced by around 50% by the exclusion of financial companies.
The Inclusive Framework aims to reach final decisions on the design of the framework by October 2021. Subject to ongoing discussions, both pillars are expected to be brought into effect in 2023.
