The so-called Global Anti-Base Erosion Rules (GloBE) are intended to ensure large multinational enterprises pay a minimum level of tax on the income arising in each of the jurisdictions where they operate. The GloBE Rules are stated to provide for a coordinated system of taxation that imposes a top-up tax on profits arising in a jurisdiction whenever the effective tax rate, determined on a jurisdictional basis, is below the minimum 15% rate.
The minimum tax will apply to MNEs with revenue above EUR 750 million and the measures are estimated to generate around USD 150 billion in additional global tax revenues annually.
The OECD released the Pillar Two Model Rules on 20 December 2021, and more recently the Commentary to accompany the Rules on 14 March 2022. Further guidance is expected by way of an Implementation Framework, but that may not be completed and available until the end of 2022.
So will Pillar Two happen?
The short answer to that is most likely yes, given the political momentum worldwide. The practical realities of implementation and adoption into domestic legislation are a different proposition however, with most commentators and media reporting a more realistic 2024 implementation date as compared to the originally envisaged 2023.
Indeed Mathias Cormann, former Finance Minister in the Morrison government and now the Secretary-General of the OECD, has acknowledged the clearly ambitious 2023 timetable, and has intimated that it’s much more likely that implementation around the globe will be from 2024 onwards.
Australia’s position
As part of its election platform, Labor confirmed that it will adopt the global developments on multinational tax including the global minimum corporate tax rate. The newly formed government says it will take responsible and measured steps to implement the OECD’s proposals to ensure the global tax system is more robust, and to ensure that Australia does not lose out when other jurisdictions are implementing a global minimum rate.
In accordance with the global agreement, member countries are not required to implement the minimum tax rate, but if they do so it must be in accordance with the principles set out in the Model Rules. It’s fair to say the rules and accompanying commentary are incredibly complex and will prove a significant challenge to adopt into domestic legislation. To date there has been no visibility on how Australia will seek to enact its version of the Rules. That said, its implementation appears inevitable, and taxpayers should start planning for its impact now.
Click below to see key developments in some of the leading jurisdictions globally with respect to implementing the Pillar Two proposals.
Insight: Key global developments in Pillar 2 model rules
