1. Nearly 150 countries have agreed on a landmark plan to stop large global companies shifting profits to low-tax jurisdictions, but the US will be exempt from the deal, angering tax transparency groups.
2. The plan, finalised by the Organisation for Economic Cooperation and Development, excludes large US-based multinational corporations from the 15% global minimum tax after negotiations between the Trump administration and other members of the G7.
1. The G7 countries on 28 June reached a compromise on the global minimum corporate tax. The United States under President Trump had said it would withdraw from the international deal that provided for the tax, brokered in 2021 by the Organisation for Economic Co-operation and Development, and would levy a ‘revenge tax’ on countries applying the global minimum to US companies. The G7 agreement removes that threat for now, but at the price of a ‘side-by-side’ system in which US companies will be to some extent protected.
2. The agreement could be seen as a defeat for Europe and other G7 countries, which have conceded a carve out for American businesses. This concession rewards threats by the US and does not send a signal of power at a time when Europe and other economies face challenges from the US. However, it may contradict the expectations of those who thought the minimum tax would not survive President Trump’s second term.
1. The US’s exemption from the global minimum tax, in exchange for the removal of revenge taxes from what President Donald Trump has dubbed his “big, beautiful bill”, has thrown a lifeline to the beleaguered reform championed by the OECD, but its path to success remains uphill.
2. G7 countries agreed to a “side-by-side” solution that “would fully exclude” US-parented groups from the 15% minimum tax on large multinationals championed by the OECD and endorsed by over 140 countries worldwide, according to a joint statement published on June 28.
3. In other words, US multinationals will only respond to US fiscal law and its own minimum thresholds for taxing American profits from abroad.
1. Malaysia has implemented the Global Minimum Tax (GMT) as part of the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS).
2. Under Malaysia’s GMT framework, two key tax mechanisms have been introduced to ensure compliance with the 15 percent minimum effective tax rate. The Domestic Top-up Tax (DTT) applies to Malaysian entities, ensuring they meet the required tax threshold, while the Multinational Top-up Tax (MTT) is designed for MNEs operating in Malaysia to align their global income taxation with international standards.
3. Companies falling below this threshold must file a top-up tax return, with transitional penalty relief available to support businesses during the initial implementation phase.
4. This framework, effective from January 1, 2025, is part of Malaysia’s commitment to aligning its tax policies with OECD guidelines and maintaining competitiveness within the ASEAN region.
1. President Donald Trump on Monday declared that a global corporate minimum tax deal "has no force or effect" in the U.S., effectively pulling America out of the landmark 2021 arrangement negotiated by the Biden administration with nearly 140 countries.
2. Trump, in a presidential memorandum issued hours after taking office, also ordered the U.S. Treasury to prepare options for "protective measures" against countries that have - or are likely to - put in place tax rules that disproportionately affect American companies.
3. The European Union, Britain and other countries have adopted the 15% global corporate minimum tax, but the U.S. Congress never approved measures to bring the U.S. into compliance with it. The U.S. has a roughly 10% global minimum tax, part of Trump's landmark 2017 tax cut package approved by Republicans.
1. On 1 March 2024, the Thai Revenue Department released a draft legislation for an adoption of the Global Anti-Base Erosion Rules (GloBE rules) in Thailand, aligning with the Organisation for Economic Co-operation and Development's (OECD) Base Erosion and Profit Shifting (BEPS) 2.0 Pillar Two project. The draft legislation was open for a public consultation from 1 March 2024 to 15 March 2024.
2. This draft legislation is a response to the Cabinet's resolution on 7 March 2023 to collect the Top-up Tax in Thailand for in-scope multinational enterprises (MNEs). The Cabinet assigned the Thai Revenue Department with drafting the associated regulations and guidelines. (For background, see EY Global Tax Alert, Thailand plans to implement global minimum tax rules under OECD BEPS 2.0 Pillar Two, 10 March 2023.)
1. The emerging idea of global minimum tax is inseparable from the challenges faced by tax jurisdictions in the digital economy. In the era of digitalization, MNEs can conduct business activities anywhere and anytime without being limited by country barriers. Unfortunately, it is difficult for taxation authorities to prevent harmful tax avoidance through profit shifting on cross-border transactions. Thus, MNEs freely try to shift their profits in low-tariff countries. Therefore, in order to prevent profit shifting, the OECD published the BEPS Action Plan in 2013 which was later reduced to pillar two of the Global Anti Base Erosion (OECD, 2021).
2. In addition, one of the objectives of implementing a global minimum tax is to prevent tax incentive wars to attract investment. It must be recognized that fiscal incentives have a significant role in attracting FDI (Foreign Direct Investment). Various studies show that tax incentives in the form of tax holidays and tax allowances have a significant influence in attracting FDI in Indonesia. Sari et al (2015), for example, found that tax holidays have an impact on increasing investment activity in Indonesia. On the other hand, Pratiwi and Khoinurrofik (2023) argue that the effective tax rate has a significant impact on fixed asset investment. That is, the lower the effective tax rate, the higher the level of investment in fixed assets. However, unhealthy competition between jurisdictions in providing fiscal incentives makes MNEs easily shift their profits (race to the bottom).
1. As of November 4 2021, 137 out of 141 member jurisdictions of the G20/OECD Inclusive Framework on BEPS (IF) have agreed to the statement issued by the IF on October 8 2021, which set out the building blocks and key rates for pillar one and pillar two of the BEPS 2.0 reform.
2. Many jurisdictions across the ASPAC region, including Hong Kong SAR, offer a range of tax incentives to attract business and investment. However, the introduction of a global minimum tax of 15% under pillar two raises questions as to the appeal and future of such tax incentives.
3. The global minimum tax may reduce the effectiveness of tax incentives and disincentivise jurisdictions to introduce tax concessions if another jurisdiction can claw back that benefit.
1. On 10 July, the G20 endorsed the key components of the two pillar approach to international tax reform that was recently endorsed by 131 countries and jurisdictions, constituting the vast majority of the OECD/G20 Inclusive Framework (IF) on Base Erosion and Profit Shifting (BEPS). Each of the two pillars addresses a separate concern.
2. Pillar One targets the largest multi-national groups focussing initially on those with EUR20 billion of consolidated revenue or more and net profits in excess of 10% (profit before tax/revenue) and will require them to pay tax in the locations where their customers and users are located. A formulaic approach will be used to allocate a percentage of profits between each jurisdiction. Pillar One should effectively require in scope multinationals to pay at least some tax in the markets they interact with.
3. Pillar Two, the key components of which are commonly referred to as the "Global Minimum Tax" or "GloBE" and which is the focus of this FAQ, introduces a minimum effective tax rate of at least 15%, calculated based on a specific ruleset. Groups with an effective tax rate below the minimum in any particular jurisdiction would be required to pay top-up tax to their head office location. The tax would be applied to groups with revenue of EUR750 million or more, making it far more widely applicable than Pillar One.
4. The Global Minimum Tax attempts to limit tax competition by introducing a globally uniform floor, below which the effect of low tax rates or fiscal policy measures would be largely obviated.
1. On 10 July, the G20 endorsed the key components of the two pillar approach to international tax reform that was recently endorsed by 131 countries and jurisdictions, constituting the vast majority of the OECD/G20 Inclusive Framework (IF) on Base Erosion and Profit Shifting (BEPS). Each of the two pillars addresses a separate concern.
2. Pillar One targets the largest multi-national groups focussing initially on those with EUR20 billion of consolidated revenue or more and net profits in excess of 10% (profit before tax/revenue) and will require them to pay tax in the locations where their customers and users are located. A formulaic approach will be used to allocate a percentage of profits between each jurisdiction. Pillar One should effectively require in scope multinationals to pay at least some tax in the markets they interact with.
3. Pillar Two, the key components of which are commonly referred to as the "Global Minimum Tax" or "GloBE" and which is the focus of this FAQ, introduces a minimum effective tax rate of at least 15%, calculated based on a specific ruleset. Groups with an effective tax rate below the minimum in any particular jurisdiction would be required to pay top-up tax to their head office location. The tax would be applied to groups with revenue of EUR750 million or more, making it far more widely applicable than Pillar One.
4. The Global Minimum Tax attempts to limit tax competition by introducing a globally uniform floor, below which the effect of low tax rates or fiscal policy measures would be largely obviated.
1. On July 1 2021, 130 countries approved a statement providing a framework for reform of the international tax rules. These countries are members of the OECD/G20 Inclusive Framework on BEPS (IF), comprising 139 countries.
2. The statement sets forth the key terms for an agreement of a two-pillar approach to reforms and calls for a comprehensive agreement by the October 2021 G20 Finance Ministers and Central Bank Governors meeting, with changes coming into effect in 2023.
3. Pillar one of the agreement is a significant departure from the standard international tax rules of the last 100 years, which largely require a physical presence in a country before that country has a right to tax.
4. Pillar two secures an unprecedented agreement on a global minimum level of taxation which has the effect of stipulating a floor for tax competition among jurisdictions.
5. The Multilateral Instrument (“MLI”) was signed in June 2017 by more than 70 jurisdictions, and represents one of the most important changes to-date to cross-border tax norms. Malaysia became a signatory to the MLI on 24 January 2018; and ratified the MLI on 4 August 2020 when the Malaysian MLI Order was gazetted. On 18 February 2021, Malaysia deposited the instrument of ratification with the OECD; and the MLI entered into force for Malaysia on 1 June 2021.
1. On October 12, 2020, the Organisation of Economic Co-operation and Development (OECD) released “blueprints” of proposed solutions to address tax challenges arising from the accelerating digitalization and globalization of the world economy.
2. The Pillar 1 and Pillar 2 OECD blueprints focus on nexus and profit allocations, in addition to base erosion and profit shifting (BEPS) challenges.