Global Corporate Tax Agreement Implementation: What to Know

Business

Global Corporate Tax Agreement Implementation: What to Know

Currently, implementation is underway across the globe, albeit at different timelines and with varying approaches across jurisdictions. Known as the two-pillar solution, the Global Corporate Tax Agreement is an initiative by the OECD/G20 Inclusive Framework to respond to tax challenges arising from the digitalization of the economy and to address the “race to the bottom” in the area of corporate income taxes.

Pillar Two: Global minimum tax
In contrast, Pillar Two, creating a 15% global minimum corporate income tax on MNEs’ income with annual revenues over €750 million, is much further advanced than Pillar One in terms of its implementation process.
Implementation timeline: The IIR is the key enforcement mechanism of Pillar Two. The IIR came into effect in many jurisdictions from 2024. The Undertaxed Profits Rule, a backstop, will apply generally from 2025.
Country status: Several countries have already implemented or announced plans to implement the rules, starting at the end of 2024 and 2025, including most European Union members through the EU Minimum Tax Directive.
Domestic minimum tax: Many countries are introducing a Qualified Domestic Minimum Top-up Tax (QDMTT) in their respective laws to retain the additional tax revenue domestically, rather than having it go to the MNE’s parent company’s jurisdiction.