Taxes mainly target multinational groups in order to seek the best distribution of the tax base in times of digitalization and globalization of the economy, beyond the principle of territoriality. Argentina has a project waiting to be treated.
The second pillar as proposed by the OECD is a set of standards that “provide governments with a detailed model for implementing solution transfer based on two pillars, and which address the challenges arising from the digitalization and globalization of the economy.” (1). This model aims to avoid erosion of the global tax base. This not only addresses the problem of digitization and permanent virtual incorporation, but seeks better distribution in a more equitable way than the principle of territoriality that was designed for a previous era brings us, in addition to combating low or zero tax collection. It targets large multinational groups (MNEs) to ensure that they are subject to minimum taxes in every jurisdiction in which their subsidiaries operate.
The model in question stipulates the application of a minimum tax of 15% to confront international tax competition. The OECD has defined so-called GloBE rules (Global Anti-Base Erosion Rules). It applies to multinational companies with income exceeding 750 million euros (according to consolidated financial statements), and specifies the application of a supplementary tax on profits using four new tax mechanisms, which can be attributed to companies with an effective tax of less than 15%.
1|What are the new mechanisms?
Income inclusion rule (IIR): This is the minimum tax applied in the jurisdiction of the parent company in relation to taxes paid by subsidiaries.
Tax Reduction Rule (UTPR): which is paid in the subsidiary’s jurisdiction in case the IIR is not met in the parent’s jurisdiction. The UTPR is applied by partial objection to company deductions or an equivalent adjustment procedure (depending on internal legislation).
Qualifying Minimum Domestic Additional Tax (QDMTT): Proposes the minimum tax applicable on profits generated in each jurisdiction in which the multinational operates. It requires that the minimum tax be implemented and administered in a manner consistent with the outcomes set out in the GloBE Rules, so as to increase the domestic liability of multinational corporations on excess domestic profits until the minimum rate is reached.
Subject to Tax Rule (STTR): A traditional rule that proposes establishing a minimum tax for certain transactions within a group or related entities.
2|How do you advance globally?
Ultimately, GloBE rules determine who applies and who is considered a multinational corporation; How do I calculate the effective rate for each MNE subsidiary; What is the amount of the new tax, what financial mechanisms will be applied and which group member will be responsible for taxing it. Ideally, these rules would be transferred to the domestic legislation of the accession countries. We see in the attached table the progress that has been achieved in some countries.
- Austria: In October 2023, a draft law on the implementation of the second pillar was published. The project complies with European Union directives. The new regulations will come into effect from January 1, 2024.
- Bulgaria: In November 2023, the draft law was sent to Parliament. Includes IIR and QDMTT applicable as of December 2023. Project includes UTPR applicable as of December 2024.
- Denmark: In October 2023, a draft bill implementing the second pillar of national legislation was sent to Parliament.
- France: The draft law was presented for the year 2024, which includes the implementation of the axis. This includes the IIR and QDMTT applicable to fiscal years beginning on or after December 31, 2023. The project also includes UTPR
- Romania: On October 4, 2023, the draft implementation of the second pillar was published. This includes IIR, QDMTT, and UTPR.
- United kingdom: In September 2023, the government published a draft containing updates to the draft law published in July of that year. HMRC has launched a project including the adoption of the UTPR and QDMTT transitional safe harbours.
- Canada: In August 2023, a draft law was published that included the IIR and QDMTT. The UTPR is not part of this bill. It includes a temporary safe harbor for country-level reporting (CbCR) and another for QDMTT in accordance with OECD guidance.
- Czech Republic: In October 2023, the Pillar Two Implementation Bill was passed. This includes the IIR and the national minimum supplementary tax (DMTT). In addition, the UTPR will apply from December 31, 2024. .
- Finland: In October 2023, the Pillar 2 proposal was published. They include IIR, UTPR and QDMTT. It follows the OECD Model Rules, but with some exceptions (for example, relating to rules on tax procedures).
- Germany: In November 2023, the bill was passed. Some minor changes are being introduced to include some elements of the OECD Administrative Guidance published in February 2023 (eg, asymmetric treatment of dividends and distributions).
- Ireland: In October, the draft Finance Bill was published, which includes a draft law to implement the Pillar Two regulations.
- Italy: In September 2023, the government published a draft legislative decree to implement the second pillar in its national legislation. The matter is currently still in the public consultation process.
- Lithuania: In October 2023, the Ministry of Finance issued a draft law to implement the Minimum Tax Directive. But it is intended to delay implementation of the GloBE rules.
- Luxembourg: In August 2023, the government introduced a draft law that includes the IIR and QDMTT. In addition, the bill includes the UTPR.
- Slovakia: In August 2023, it published a draft law for public consultation to implement Pillar Two in national legislation. The draft law is largely in line with European Union directives. Currently, the draft law does not include the IIR and UTPR, the implementation of which will be postponed.
- Slovenia: On 23 June 2023, the Slovenian Ministry of Finance published a draft law to implement the second pillar. The bill includes IIR and QDMTT. In addition, the bill includes a UTPR that will be implemented after one year.
- South Korea: In July 2023, the Ministry of Economy and Finance announced its scheduled amendments to the Pillar Two rules enacted in Korea. The announcement confirms that the IIR will be effective from 2024.
- Sweden: In August 2023, the Ministry of Finance published a draft law in line with the EU Pillar II Directive and incorporating the IIR, QDMTT and UTPR.
- Taiwan: The government announced in August 2023 that there was no specific timetable for the introduction of Pillar Two. In the medium term, Taiwan will consider introducing QDMTT in line with international standards.
- Vietnam: The Ministry of Finance prepared a draft decision leading to the implementation of the second pillar. The National Assembly is expected to vote on the resolution on the QDMTT and IIR during November 2023.
3|Objectives of the Organization for Economic Cooperation and Development
The taxes proposed by the OECD do not seek to create a new tax burden on companies, but rather seek to ensure that multinational groups pay minimum taxes on their income regardless of the jurisdiction in which they are located. It aims to eliminate all types of tax competition between countries with regard to income tax.
4|Final meditation
We will soon see what position Argentina will adopt regarding the second pillar and whether the project submitted to Congress on September 27, 2023, which proposes setting minimum taxes to pay for certain companies, flourishes or not.
Doctorate in Economic Sciences UBA with orientation in Taxation. Bachelor’s and Master’s degree teacher at UBA.
1) https://www.oecd.org/tax/la-ocde-presenta-las-normas-modelo-del- Segundo-Pilar-para-facilitar-la-aplicacion-interna-del-impuesto-minimo-global- Dell 15 percent.htm.
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