July 5, 2021
Take into consideration the mismatch between a globalized and digitalized 21st century economy and the current tax reform, 130 countries and jurisdictions, representing more than 90% of global GDP, decided to join the Statement that defines the new framework for international tax reform.
This reform includes an October 2021 deadline for finalizing the remaining technical work, as well as a plan for effective implementation in 2023.
International tax reform
The two-pillar package – the outcome of negotiations coordinated by the Organization for Economic Co-operation and Development, commonly known as OCDE, for much of the last decade – aims to: (i) ensure that large Multinational Enterprises (MNEs) pay tax where they operate and earn profits; and (ii), consequently, promote much-needed certainty and stability to the international tax system.
In this regard, it should be also noted that two-pillar measures defined by OECD are responsible for:
- Pillar One – ensure a fairer distribution of profits and taxing rights among countries with respect to the largest MNEs, including digital companies.
This measure intends to re-allocate some taxing rights from their home countries to the markets where they have business activities and earn profits, regardless of whether firms have a physical presence there.
- Pillar Two – 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.
This measure will provide much-needed support to governments needing to raise necessary revenues in order to, mainly, optimize the strength and the quality of the post-COVID recovery.
The two-pillar package is expected to allow the: (i) reallocation of taxing rights on more than USD 100 billion of profit to market jurisdictions each year; (ii) assuming a minimum rate of at least 15% – pillar two – generation of around USD 150 billion in additional global tax revenues annually; (iii) stabilization of the international tax system; and (iv) increase of tax certainty for taxpayers and tax administrations.
For more details, please check Action 1 of the Base erosion and profit shifting plan, commonly known as BEPS, in here.
The information presented above is not intended to be an exhaustive analysis of all the changes to the current legal regime, but rather a selection of those that we believe to be the most relevant, and does not preclude consultation of our Company and / or legislation to which it refers.
For more information contact: Catarina Breia (+351 91 7575 832 or email@example.com) from our Tax Department.