International Tax Update – OECD reaches deal for global minimum tax rate at 15%
The Organisation for Economic Cooperation and Development (OECD) recently announced that 136 countries agreed to the Statement on the Two-Pillar Solution to address the tax challenges arising from the digitalization of the economy that will have a fundamental impact on international tax rules.
By joining this tax reform, countries have agreed to set a minimum 15% corporate tax rate as per Pillar Two of the Statement by 2023. Pillar Two would apply to those companies that operate in multiple jurisdictions with annual revenue above EUR 750 million.
PURPOSE OF THE PILLAR TWO
The reform will address the tax challenges arising from global digitalization as the world has become interconnected allowing multinationals to avoid paying corporate income tax in jurisdictions where the income is earned.
The aim of Pillar Two is not to eliminate tax competition, but to agree on minimum corporate tax rate limitations globally. As per the OECD reports, such an approach will prevent the profit shifting to low tax jurisdictions and ensure that the fair share of tax is paid where economic activity is conducted and profit is earned.
IMPACT ON BUSINESSES IN UAE
It is yet to be confirmed whether the UAE is planning to introduce a minimum corporate tax or decide to remain the status quo and allow other jurisdictions to tax UAE businesses abroad.
In light of the Statement on the Two-Pillar Solution, the UAE faces an interesting dilemma.
WHAT’S NEXT?
It is expected that the OECD will release a detailed set of rules for Pillar Two to ensure an effective implementation from 2023 onwards.
In the meantime, key impact areas and considerations include may include the following:
- Analyze the potential group tax rate considering provisions of Pillar Two;
- Analyze the impact on the group’s transfer pricing policies;
- Analyze the impact on the existing advance pricing arrangements/ tax rulings; and
- Monitor measures to be taken by other jurisdictions in respect of those jurisdictions that will not implement a minimum corporate tax rate as per Pillar Two.
WHO ARE WE?
Re/think is a boutique accounting, audit, advisory, regulatory compliance, and tax advisory firm with offices in Dubai and Abu Dhabi (ADGM) focused on providing businesses of varying sizes with timely, proactive, and customized business solutions from start-up and early development to the latest stages of a business lifecycle.
HOW CAN WE HELP?
Rethink as an entity provides VAT advisory, optimization, registration, implementation, compliance, and training services in UAE, Bahrain, KSA, and the GCC.
Our team of senior qualified tax advisors, finance experts, and tax accountants are happy to provide practical help and advice, to ensure timely and cost-effective VAT services.
Based on our local and international experience, we understand that VAT is a complex tax and would certainly suffer numerous changes in the upcoming years. Rethink’s VAT services are aimed to suit both basic and complex returns for SMEs and larger enterprises.
Authors
Greg Shippee
Managing Partner
Mariia Hordiichuk
Tax Manager
