Pillar-II Model Rules for Global Minimum Tax

Subject – IR

Context – OECD releases Pillar-II model rules for domestic implementation of 15% global minimum tax

Concept –

The Organisation for Economic Co-operation and Development (OECD) published detailed rules to assist in the implementation of new international tax system, which will ensure multinational enterprises (MNEs) will be subject to a minimum 15 per cent tax rate from 2023.
India is one among 137 countries that are signatory to new global tax regime.
They are drafted as model rules that provide a template that jurisdictions can translate into domestic law, which should assist them in implementing Pillar Two within the agreed time frame and in a co-ordinated manner.
The rules define the scope and set out the mechanism for the Global Anti-Base Erosion (GloBE) Rules under Pillar Two. These will assist countries to bring the GloBE rules into domestic legislation in 2022.
The minimum tax will apply to MNEs with revenue above €750 million and is estimated to generate around $150 billion in additional global tax revenues annually.
The model rules have kept the primary scope same as annual revenue of € 750 million for constituent entities that are members of an MNE Group with exclusions for a governmental entity, an international organisation, a non-profit organisation, a pension fund, an investment fund that is an ultimate parent entity, and a real estate investment vehicle that is an ultimate parent entity etc.
- The term ‘Permanent establishment’ has been defined as well under the model rules.

To know more about Global minimum tax, please refer June 2021 DPN.

To know about Pillar-1 and Pillar-2, please refer September 2021 DPN.