Pillar 2 is the agreement and implementation of a global minimum taxation rate of 15%. It is also referred to as the Global Anti-base Erosion or GloBE.
The first step is to determine the effective tax rate for the entities by jurisdiction and identify any jurisdiction that is low-taxed income i.e. under 15%. If an entity is below this limit, they need to calculate the top-up tax due, referred to as the Income Inclusion Rule. This top-up may vary in each jurisdiction but the principle is that there is a Domestic Top-up Tax (DTT) and a Multinational Top-Up Tax (MTT).
When countries have legislated for Pillar 2, they will also contain provisions for the undertaxed profits rule (UTPR) which will allow the country to increase taxes on an MNE if that MNE pays less than the agreed effective tax rate of 15%.
The OECD set an aggressive timeline to have countries complete the implementation phase by the end of 2023. Some countries have not yet completed this implementation as each country needs to agree the principle of Pillar 2 in law. Where countries have committed to a date, the most commonly agreed date is 2025 with some already deferred to 2030.
Pillar 2 is designed to apply to multinational enterprises or MNEs with consolidated revenues of at least €750m.
If your business benefits from tax incentives, you should consider the impact of Pillar 2 as part of your global tax planning.
At Source Advisors, we can help navigate your fiscal incentives to ensure that they are structured to best support your Pillar 2 commitments.
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