With global economies recovering from the financial effects of Covid-19 pandemic, on 5 June 2021, G7 world leaders seized momentum to push for the ending of the race-to-the-bottom in corporate taxation and for ensuring fairness for middle class and working people by accepting the introduction of a global minimum tax rate of at least 15%. This global minimum tax rate is part of the OECD Inclusive Framework that the OECD and its 139 member countries have been discretely working on following the successful roll out of BEPS initiatives from 2015 that has fundamentally changed international tax policies of global operating businesses.
On 1 July 2021, 130 OECD member countries (including People's Republic of China, India and the Russian Federation) have joined a historic statement in Paris agreeing to systemic tax reforms. Some countries are still holding out including several tax havens and three EU Member States (Hungary, Ireland and Cyprus). The statement establishes a new international tax system updating key elements of a century old international tax system that is no longer fit for purpose in a globalised and digitalised 21st century economy by partially re-allocating taxing rights (also known as Pillar 1) and the introduction of a global minimum tax rate (also known as Pillar 2). The OECD shall now work on the remaining elements of the framework and the coordination of technical discussions to thrash out remaining details. Implementation is expected to start as early as 2023. It is expected that G20 leaders will endorse the completed framework prepared by the OECD at their summit in Rome in October this year.
Pillar 1 of the OECD Inclusive Framework puts in scope multinational enterprises with global turnover above EUR 20 billion and profitability above 10%. Pillar 2 puts in scope multinational enterprises that meet the EUR 750 million threshold, but excludes businesses active in regulated financial services, shipping industry and those that receive incentives to invest in tangible assets. Countries can choose to apply it to all businesses.
The European Commission (the EC) is also gearing up its initiatives in order to secure the competitiveness of the European economies and to implement its political agenda. On 18 May 2021, the EC issued a communication including the EU’s business tax agenda for the next years. Its agenda includes a Directive to implement the OECD Inclusive Framework based on the OECD Model Rules with the necessary adjustments and a legislative proposal for income taxation for businesses in Europe (Business in Europe: Framework for Income Taxation or BEFIT). BEFIT will consolidate the profits of the EU members of a multinational group into a single tax base, which will then be allocated to Member States using a formula, to be taxed at national corporate income tax rates. This new proposal will replace the pending proposals for a Common Consolidated Corporate Tax Base.
In order to continue its fight against tax avoidance and the abusive use of shell companies the EC also announces the introduction of transparency rules requiring tax payers to disclose to their tax administration whether or not they have a certain minimum level of presence and real economic activity. These proposals should be ready as early as Q3 2021.
Other elements of the business tax agenda are a recommendation to Member States on the domestic treatment of losses and a legislative proposal for a similar tax treatment of debt and equity, the so-called Debt Equity Bias Reduction Allowance (DEBRA).
The OECD Inclusive Framework and the proposals being developed by the EC are likely to lead to significant changes in the overall international corporate and tax architecture of taxpayers operating internationally and should be carefully monitored.
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On 1 June 2021, the Netherlands and Cyprus signed a tax treaty (Tax Treaty) aimed to eliminate double taxation and prevent tax evasion.
On 4 April 2022, the Dutch State Secretary of Finance