Multinational Top-Up Tax – careful scrutiny required

John Cullinane, CIOT Director of Public Policy, commented:

“The global agreement on a minimum rate of corporation tax is historic but making it happen is complicated. The legislation published today for a new ‘Multinational Top-up Tax’ is long and complex and the new rules will pose big administrative and compliance challenges for tax authorities and affected businesses alike.

 “It is important countries move forward together in this area. The Government’s priority should be to make sure that there is an effective implementation of the minimum global corporation tax rules, in detail as well as in principle, so that the end result is a multilateral set of interlocking rules that faithfully deliver the policy aims. It is not sensible to go through the motions of doing something in the UK quickly which will not deliver those aims.

“For this reason we welcome the Government’s decision to implement the reform at the end of 2023 rather than, as previously suggested, next April. We also welcome the publication of the draft legislation for consultation at this stage, notwithstanding the recognition that there are many areas that require further multilateral work through the OECD ‘Implementation Framework’. This affords an opportunity for early scrutiny.

"It is more important to do this right and to do it together than it is to do it quickly.”

Notes to editors

Last October more than 135 countries in the OECD/G20 Inclusive Framework on BEPS agreed a two-pillar solution to reform international tax to deal with the challenges arising from the digitalisation of the global economy, aiming to ensure that multinational enterprises (MNEs) pay a fair share of tax wherever they operate and generate profits.

'Pillar 1’ involves a partial reallocation of taxing rights over the profits of MNEs to the jurisdictions where consumers are located. (This is intended, among other things, to address the issue that many of the tech giants, under existing rules, pay most of their tax in the US despite making sales all across the globe.) The detailed rules that will deliver this are still under development by the Inclusive Framework.

‘Pillar 2’ intends to ensure that MNEs pay a minimum rate of 15 per cent corporation tax (or their version of it) in every country they operate in. The Inclusive Framework has published model legislation (Model Rules) with the aim for countries to legislate these Pillar 2 rules (also known as the Global Anti-Base Erosion (GloBE) Rules) in 2022, with effect from 2023. The speed at which the rules have developed has led to significant challenges with the rules as published, which would result in arbitrary and unsatisfactory outcomes. Work continues through the OECD Implementation Framework to address some of the issues.