Even Closer? A Global Minimum Tax on Corporations December Update

07 December 2021

This article is an update from a previous article published on 20 August 2021.

On 8 October 2021, the OECD/G20 Inclusive Framework published a statement where 136 jurisdictions[1] agreed to a global minimum tax on corporations (“GMCT”). The previous article noted that much will depend on the outcome of future political negotiations. After some negotiations, the new statement represents an improvement from the previous one, incorporating more countries.


  • Pillar One allocates profits (“Amount A”) to market jurisdictions whose customers contribute to the success of large MNEs without raising fiscal revenue in return. In-scope companies are MNEs with global turnover above €20bn and profitability above 10%, which has remained unchanged from the July statement.
  • The GMCT is expected to raise c.$150bn in additional global tax revenues[2].
  • Pillar Two of the agreement establishes a rule consisting of a top-up tax on parent companies in respect of the low taxed income of subsidiaries, which would decrease the leverage of tax havens.
  • It also incorporates another rule in the same direction, which denies deductions or requires an equivalent adjustment as an alternative to the first rule.

Changes from the previous statement

  • The initiative is now supported by Estonia, Ireland and Hungary, which means that the last statement has been agreed by all 38 OECD member countries.
  • For Pillar One, the Multilateral Convention (“MLC”) to implement Amount A will be developed in 2022. The new statement includes an annex setting out a detailed implementation plan.
  • For Pillar Two, the new statement establishes a partial exclusion for smaller MNEs (defined as those with maximum €50m of tangible assets abroad and operation in five or less jurisdictions).
  • Pillar Two also provides for a de minimis exclusion, and the new statement clarifies that this will be for jurisdictions where an MNE has revenues of less than €10m and profits of less than €1m.
  • The GMCT sought to introduce a minimum corporate tax of “at least” 15%, which meant it could be higher than that. After negotiations with countries like Ireland, which has a corporate tax rate of 12.5%, the new agreement establishes a minimum corporate tax of 15%.
  • Finally, the proposal incorporates a Subject to Tax Rule (“STTR”) for developing countries, applying to interest, royalties and other payments. The July statement had determined that the minimum rate for the STTR would be between 7.5% and 9%, whereas this new statement clarifies that it will be 9%. This lessens the advantage that developing countries may obtain from this provision.

Key points for the future

  • Many countries have recently introduced Digital Services Taxes (“DSTs”), which are proposed to be abolished in the new statement. DSTs are broadly considered to be discriminatory by the US, so the success of the GMCT partially depends on their abolition. The joint statement signed on 21 October between the UK, France, Italy, Spain, Austria, and the US provides for DSTs to remain in force until Pillar 1 takes effect. The US and India reached a similar agreement on 24 November 2021.
  • In addition, the new statement adds that no newly enacted DST will be imposed from 8 October 2021 until either (1) 31 December 2023, or (2) the coming into force of the MLC, whichever comes first. Nevertheless, the Autumn Budget confirmed that the UK will introduce an online sales tax. Whether this is considered a “relevant similar measure” to a DST will be an important discussion, particularly for the UK.
  • We argued in our previous article that much of the success of the GMCT will depend on its local implementation. The new statement acknowledges that caveat, mandating the Task Force on the Digital Economy to develop model rules for domestic legislation by early 2022 in order to facilitate the incorporation of Pillar One.
  • In the US, the Republican opposition is still staunchly against Pillar One,[3] which could relocate 30% of the targeted MNEs’ global profits from the US to “market jurisdictions”. Without Republican support, it would take one Democratic senator to vote against the proposal for it to fail in the US.
  • Although Ireland, Hungary and Estonia joined the new agreement, Cyprus, another EU member, has not done so yet. Some say that Pillar Two may be incompatible with the EU’s freedom of establishment under Cadbury Schweppes. Although implementing Pillar Two through an EU Directive could help the CJEU conclude that they are compatible, Cyprus could block said Directive. Whether Cyprus will eventually join this initiative remains to be seen.
  • Finally, a model treaty provision to give effect to the STTR, which favours developing countries, was supposed to be published by the end of November 2021.[4] In this regard, which types of payments fall under this special rate is likely to be the subject of future political negotiations.

[1] 137 now with the inclusion of Mauritania on 4 November 2021.
[2] OECD, ‘International community strikes a ground-breaking tax deal for the digital age’ (8 October 2021).
[3] Politico, ‘Global tax deal risks having US half in, half out’ (22 October 2021).
[4] As of 7 December 2021, it has not been published.

Return to List of Articles by UK Lawyers on Tax Disputes, Tax Litigation, HMRC Tax Appeal Return to Listings
Left Button on Tax Dispute & Tax Litigation Lawyers in London

Our Insights

Insights from UK Tax Dispute Lawyers & HMRC Tax litigation

One minute with Helen McGhee

https://www.taxjournal.com/articles/one-minute-with-helen-mcghee-Helen McGhee provides an overview of the “hot topics” currently impacting the world of tax.

Read More

Right Button on Tax Dispute & Tax Litigation Lawyers in London