In December last year, the Organisation for Economic Co-operation and Development (OECD) released the Pillar Two Model Rules as approved by the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS). The Model Rules, referred to collectively as the "GloBE rules", include the Income Inclusion Rule (IIR) and the Under Taxed Payments Rule (UTPR).

The OECD also released a summary of the rules (The Pillar Two Model Rules in a Nutshell), an overview of the key operating provisions of the GloBE rules (Fact Sheets) and a Frequently Asked Questions document.

The rules define the scope and set out the mechanism for the GloBE rules under Pillar Two, which will introduce a global minimum corporate tax rate set at 15%. The minimum tax will apply to MNEs with revenue above EUR 750 million and is estimated to generate around USD 150 billion in additional global tax revenues annually.

The GloBE rules provide for a co-ordinated system of taxation intended to ensure large MNE groups pay this minimum level of tax on income arising in each of the jurisdictions in which they operate. The rules create a "top-up tax" to be applied on profits in any jurisdiction whenever the effective tax rate, determined on a jurisdictional basis, is below the minimum 15% rate.

It is anticipated that the Pillar Two rules should be brought into domestic law this year, 2022, to be effective in 2023, with the exception of the UTPR which is to enter into effect in 2024. The GloBE rules are designed as a common approach, which means that Inclusive Framework members are not required to adopt the GloBE rules but if they choose to do so, they should implement and administer the rules in a way that is consistent with the Model Rules. Inclusive Framework members are also required to accept the application of the GloBE rules by other Inclusive Framework members.

SNG Grant Thornton is committed to keeping you informed staying abreast of these changes, which will undoubtedly impact the tax landscape globally.

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