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Multilateral convention brings pillar one another step closer to implementation


Published: 12 Oct 2023 Update History

If ratified by at least 30 jurisdictions, the convention will introduce a new mechanism for allocating taxing rights to market jurisdictions.

The convention released by the OECD and G20 on 11 October 2023 relates specifically to ‘amount A’. This co-ordinates a reallocation of taxing rights to market jurisdictions with respect to a share of the profits of the largest and most profitable multinational enterprises (MNEs), regardless of their physical presence. This will initially apply to MNEs with global revenue over EUR 20bn and total profits greater than 10% of their global revenue.  

Subject to certain adjustments, amount A reallocates 25% of the MNE’s excess profit (ie, group profit in excess of 10% of its revenue) to market jurisdictions. 

The convention should also ensure the repeal and prevent the proliferation of digital services taxes, secure mechanisms to avoid double taxation, as well as enhance stability and certainty in the international tax system. 

The convention notes that there remain a handful of specific items on which there are differing views and therefore continued conversations between OECD members. 

OECD Secretary-General Mathias Cormann observed that: “the text provides governments with the basis for the co-ordinated implementation of this fundamental reform to the international tax system and represents significant progress towards opening the Convention for signature. 

“Countries now have the means to swiftly move forward with the steps necessary to secure signature and ratification, and we are ramping up our support for developing countries, to ensure we can deliver on our goal of making the international tax system fairer and work better in the digitalised world.” 

The text of the treaty will next be presented to G20 finance ministers and central bank governors in a new OECD secretary-general tax report ahead of their meeting in Morocco this week. 

Implementation of pillar one is expected to raise between US$17bn and US$32bn in additional global tax revenues annually by reallocating around US$200bn of profits to market jurisdictions each year. 

An OECD press release also notes that good progress is being made in the implementation of pillar two, including the opening for signature of the multilateral instrument to implement the subject to tax rule (STTR). 

The STTR is a treaty-based rule that allows developing countries to “tax back” where certain intra-group payments are subject to nominal corporate income tax rates below 9%. A new Minimum Tax Implementation Handbook has also been published that will assist governments as they consider moving forward with the global minimum tax under pillar two.  

For more information on the operation of pillar two, see ICAEW Tax Faculty’s TAXguide.

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