The Global Tax Agreement: The Two-Pillar Solution

If you like to avoid double taxation, you should always follow any changes on international taxation early on. It’s therefore worthwhile to have a look at the new global tax agreement.

Global Tax Agreement:

The Two-Pillar Solution is comprised of Pillar One and Pillar Two: The (re-)distribution of taxing rights between resident states and market jurisdiction as well as a global minimum tax. The agreement is still under discussion by the member states of the OECD. Implementation of the Two-Pillar Solution is planned for 2023.

Pillar One:

Taxing rights over 25% of the residual profit of the largest and most profitable multinational enterprises (MNEs) would be re-allocated to the jurisdiction where the customers and users of those MNEs are located. In-scope companies are the MNEs with global turnover above 20 billion euros and profitability above 10%. 25% of residual profit defined in excess of 10% of revenue will be allocated to market jurisdictions. After 7 years a review of the effects of the new regulations shall be performed to decide whether the revenue limit should be lowered. Long-term this could result in changing the transfer prices from the arm’s length principle to a formulary apportionment.

Pillar Two:

The new rules provide a global minimum tax of 15% on all multinational enterprises with annual revenue over 750 million euros.

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