On 20 December 2021, the OECD published detailed rules to assist in the implementation of a landmark reform to the international tax system, which shall ensure multinational enterprises (hereinafter “MNEs”) to be subject to a minimum 15% tax rate from 2023. The Pillar Two model rules aim to provide national governments a template for taking forward the two-pillar solution agreed on 8 October 2021 by 137 countriesunder the OECD/G20 Inclusive Framework on BEPS to address the tax challenges arising from digitalisation and globalisation of the economy. The minimum tax shall be applicable to MNEs with revenues above EUR 750 mio. and is estimated to generate around USD 150 bio. in additional global tax revenues annually according to the OECD’s press release.

The rules shall provide a co-ordinated system of taxation intended to ensure large MNE groups to pay this minimum level of tax on income arising in each of the jurisdictions in which they operate. The rules are aimed to create a so called “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. The new Pillar Two model rules shall assist governments to bring the rules into domestic legislation in 2022. They i) define the MNEs within the scope of the minimum tax; ii) set out a mechanism for calculating an MNE’s effective tax rate on a jurisdictional basis, and for determining the amount of top-up tax payable under the rules; and iii) impose the top-up tax on a member of the MNE group in accordance with an agreed rule order.

The OECD already announced it will release a commentary relating to the model rules in early 2022 that will be followed by the development of an implementation framework focused on administrative, compliance and co-ordination issues relating to Pillar Two. Furthermore, two public consultation events shall be held in February and March 2022.