MNE’s minimum global tax rate | OECD transfer pricing guidelines

By February 1, 2022 No Comments

MNE’s minimum global tax rate

For those of you who follow the activities of the OECD, you will already be aware of the agreement reached in October 2021 by its 137 member countries/jurisdictions, to ensure that certain Multinational Enterprises (MNE’s) be subject to a minimum 15% tax rate from 2023.

The October 2021 agreement was followed by the release in December 2021, of The Pillar Two model rules, which provide governments with a precise template for taking forward the two-pillar solution to address the tax challenges arising from digitalisation and globalisation of the economy.

The Pillar Two model rules will:

  • Define the MNEs within the scope of the minimum tax.
  • 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.
  • Impose the top-up tax on a member of the MNE group in accordance with an agreed rule order.
  • Address the treatment of acquisitions and disposals of group members.
  • Contain specific rules to deal with particular holding structures and tax neutrality regimes; and,
  • Cover administrative aspects, including information filing requirements, and provide for transitional rules for MNEs that become subject to the global minimum tax.

OECD transfer pricing guidelines

For those of you who are involved in cross-border dealings between associated entities, the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations provide guidance on the application of the ‘arm’s length principle’ which is the international consensus on transfer pricing, ie on the valuation for tax purposes of cross-border transactions between associated enterprises.

The January 2022 edition of the OECD Transfer Pricing Guidelines has now been released and includes the revised guidance on the application of the transactional profit method, and the guidance for tax administrations on the application of the approach to hard-to-value intangibles agreed in 2018, as well as the new transfer pricing guidance on financial transactions approved in 2020.

This article from the ‘A Week in Review’ newsletter was originally published Tuesday 1st February 2022. If you have any questions or would like a second opinion on any national or international tax issues, please contact me richard@gilshep.co.nz. 

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