27 of July 2023
Background
On 11 July 2023, a groundbreaking global tax deal was reached by 138 members of the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS), representing over 90% of the world’s GDP.
This historic agreement marks a significant step towards the implementation of the Two-Pillar Solution, addressing tax challenges in the digital economy and ensuring a fairer distribution of profits and taxing rights among multinational enterprises (MNEs).
Key Points from the agreement
- Two-Pillar Solution: The agreement focuses on the Two-Pillar Solution, designed to tackle tax challenges arising from digitalization and globalization. This solution aims to enhance international tax cooperation and promote transparency.
- Multilateral Convention (MLC): The Inclusive Framework developed a text of a Multilateral Convention that empowers jurisdictions to reallocate and exercise a domestic taxing right over a portion of MNE residual profits.
- Simplified Arm’s Length Principle: The agreement includes a proposed framework for the simplified and streamlined application of the arm’s length principle to in-country baseline marketing and distribution activities.
- Subject-to-Tax Rule (STTR): Developing countries will be enabled to update bilateral tax treaties through the STTR. This rule allows them to “tax back” income on certain intra-group transactions subject to low or non-taxation in another jurisdiction.
- Digital Services Taxes (DSTs): As part of the deal, all 138 countries and jurisdictions have agreed to refrain from imposing newly enacted digital services taxes or similar measures on any company before 31 December 2024, or the entry into force of the MLC if earlier.
Next Steps towards completion of the Two-Pillar solution
- Formal presentation: The Outcome Statement was be presented to G20 Finance Ministers and Central Bank Governors during their meeting in Gandhinagar, India, on 17-18 July.
- Signing Ceremony and entry in force: A signing ceremony is planned by year-end, with the MLC expected to enter into force in 2025, considering individual jurisdictions’ legislative and administrative processes.
- Amount B of Pillar One: Public consultation on Amount B will be launched shortly, running until 1 September. The Inclusive Framework aims to approve a final report by January 2024, with key content incorporated into the OECD Transfer Pricing Guidelines.
- Publication and signature of the Subject-to-Tax Rule: The documentation relating to the STTR will be published within the next weeks, and the Multilateral Instrument implementing the STTR will be open for signature from 2 October 2023.
- Comprehensive Action Plan: The OECD will prepare a comprehensive action plan to support the swift and coordinated implementation of the Two-Pillar Solution, providing additional support and technical assistance to developing countries.
This global tax deal represents a significant milestone in international tax cooperation, aiming to create a fairer and more stable global tax system, in an increasingly digitalized and interconnected world economy.
We are, of course, at your disposal should you require specialized assistance in this area.
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The information above is not intended to be an exhaustive analysis of all the changes to the current legal regime, but a selection of those that we believe to be the most relevant, and do not dispense with consulting our Company and/or the diplomas to which they refer.
For more information contact: Catarina Breia (+351 91 7575 832 or cbreia@pt-nexia.com)) from our Tax Department.
