September 2024: BEPS Pillar 2 Highlights

---

1. Belgium: Accepting Advance Payments for Pillar 2 Global Minimum Tax (approved)
2. Bahrain: Introduces Pillar 2 Domestic Minimum Top-up Tax (approved)
3. Iceland: Consulting on Pillar 2 Global Minimum Tax Rules in Line with EU Directive (proposed)
4. Taiwan: Increasing AMT for Companies of MNE Groups Subject to Pillar 2 Global Minimum Tax (proposed)
5. OECD: Publishes Comments Received on Draft User Guide for the GloBE Information Return XML Schema (approved)
6. Thailand: to Sign Multilateral Instrument for Pillar 2 Subject to Tax Rule (proposed)
7. Germany: Amending Minimum Tax Law to Implement BEPS Inclusive Framework Administrative Guidelines on CbC Safe Harbor and Other Matters (proposed)
8. Bahamas: Consulting on Draft Legislation for a Pillar 2 Qualified Domestic Top-Up Tax (proposed)
9. Jersey: Pillar 2 Global Minimum Tax Laws Lodged in Jersey States Assembly (proposed)
10. Sweden: Swedish Ministry of Finance Refers Amendments to Pillar 2 Global Minimum Tax Law to Council on Legislation (proposed)
11. Australia: Australian Senate Economics Legislation Committee Recommends Passage of Pillar 2 Global Minimum Tax Legislation (proposed)
12. Canada: Consulting on Legislation for Additional Budget 2024 Measures Including Pillar 2 UTPR (proposed)
13. Finland: Consulting on Amendments to the Minimum Tax Act (proposed)
14. Ireland: Irish Revenue Issues New and Updated Guidance on the Pillar 2 Global Minimum Tax (approved)
15. US: U.S. IRS and Treasury Propose Rules Regarding Dual Consolidated Losses and the Treatment of Certain Disregarded Payments (proposed)
16. Bermuda: Consulting on Administrative Provisions for New Corporate Income Tax (approved)
17. UK: Updates Guidance on Preparing for the Multinational Top-up Tax and the Domestic Top-up Tax (approved)
18. Puerto Rico: Report Released on Pillar 2 Global Minimum Tax in Puerto Rico (proposed)
19. Turkey: Enacts Tax Reform Legislation Including Pillar 2 Global Minimum Tax (approved)

---

Belgium

Accepting Advance Payments for Pillar 2 Global Minimum Tax (Approved)

Belgium’s Federal Public Service (SPF) Finance has issued a release announcing that MNE groups subject to the Pillar 2 global minimum tax rules in Belgium are able to make advance payments for 2024 from 2 September 2024. To make an advance payment, taxpayers must obtain a company number by completing the mandatory notification process for registration. Payment can be made via the MyMinfin VA Pillar 2 module or by transfer. Advance payments must be made no later than 20 December 2024.

Click the following link for further French-language guidance on the requirements, including the advance payment requirements. English-language guidance is also available but, at the time of writing, does not yet include guidance on advance payments.

Bahrain

Introduces Pillar 2 Domestic Minimum Top-up Tax (approved)

Bahrain’s National Bureau for Revenue (NBR) has announced the introduction of a new tax for multinational enterprises that aligns with OECD standards. The new tax is in the form of a domestic minimum top-up tax (DMTT) at a rate of 15% that exclusively applies to large MNE groups operating in Bahrain with consolidated group revenue equal to or exceeding EUR 750 million in at least two of the preceding four fiscal years.

The new tax has been introduced by Decree Law No. (11) of 2024 Regarding the Implementation of Tax on Multinational Enterprises (Official Arabic and Unofficial English-language Translation), which enters into force on 1 January 2025. The NBR has also published DMTT FAQs, which are available in Arabic and English.

Bahrain introduces new tax for Multinational Enterprises, aligns with OECD standards

The Kingdom of Bahrain announced the introduction of a Domestic Minimum Top-up Tax (DMTT) for Multinational Enterprises (MNEs) as outlined in Decree Law (11) of 2024.

The new framework for Multinational Enterprises (MNEs) is fully aligned with the Organisation for Economic Co-operation and Development (OECD) guidelines, and will be effective January 1, 2025, underscoring Bahrain’s commitment to promoting global economic fairness and transparency.

This strategic move builds on Bahrain’s proactive engagement with the OECD, dating back to 2018 when it joined the Inclusive Framework and endorsed the groundbreaking two-pillar reform. To date, over 140 jurisdictions have signed up for this international tax reform. As part of this two-pillar reform, the OECD established a Global Minimum Corporate Tax to ensure large Multinational Enterprises (MNEs) pay a minimum tax of 15% on profits in each country where they operate.

With the introduction of the DMTT, the Kingdom of Bahrain demonstrates its international commitment to global cooperation and its dedication to fostering a fair and level playing field in international taxation. Implementing this initiative aims to ensure that MNEs pay the minimum 15% tax on the profits generated in the Kingdom.

This Decree Law will apply exclusively to large MNEs operating in the Kingdom, with global revenues surpassing the Pillar Two threshold of EUR 750 million. Eligible businesses are urged to register with the National Bureau for Revenue (NBR) before the deadline specified in the relevant legislation

For additional inquiries, the NBR call centre can be reached on 80008001, available 24 hours, 7 days a week, or by email through mne@nbr.gov.bh. Further information and the latest updates can also be found on the NBR’s website at www.nbr.gov.bh.

Iceland

Consulting on Pillar 2 Global Minimum Tax Rules in Line with EU Directive (proposed)

Iceland’s Ministry of Finance and Economy has launched a public consultation on plans for a draft bill for the introduction of the Pillar 2 global minimum tax (GloBE) rules in line with Council Directive (EU) 2022/2523 of 14 December 2022. This includes the introduction of the Pillar 2 income inclusion rule (IIR) and the undertaxed payment/profit rule (UTPR) in order to ensure a minimum tax level of 15% for MNE groups with annual consolidated revenue of at least EUR 750 million in at least two of the last four immediately preceding financial years. Provisions are also included for the introduction of a qualified domestic minimum top-up tax (QDMTT). According to the consultation document, Iceland will adhere to the directive, which will be translated into Icelandic and is aimed at legalization (approval) in the fall of 2024. The consultation document does not state an effective date, but if the directive if fully adhered to, this would mean that the IIR and QDMTT would apply to fiscal years beginning on 1 January 2024, and the UTPR will generally apply to fiscal years beginning on or after 1 January 2025. The deadline for comments is 11 September 2024.

Taiwan

Increasing AMT for Companies of MNE Groups Subject to Pillar 2 Global Minimum Tax (proposed)

Taiwan’s Ministry of Finance has announced draft revisions to the income basic tax rate, or alternative minimum tax (AMT) rate, in response to the Pillar 2 global minimum tax. Starting in 2025, it is proposed that the AMT rate be increased from 12% to 15% for Taiwanese enterprises that are members of MNE groups that fall within the scope of the Pillar 2 global minimum tax (GMT) rules. This includes groups with consolidated annual revenue exceeding EUR 750 million in any two of the previous four years. Taiwanese enterprises that are not members of in-scope MNE groups remain subject to the 12% AMT rate. The increase of the AMT rate increase for in-scope groups is meant to reduce the risk of needing to pay GMT supplementary taxes in other countries.

OECD

Publishes Comments Received on Draft User Guide for the GloBE Information Return XML Schema (approved)

The OECD has published the comments received on the Draft User Guide for the GloBE Information Return XML Schema. The Global Anti-Base Erosion (GloBE) Model Rules require the annual filing of a GloBE Information Return (GIR) that provides information on the tax calculations made by an MNE Group under the GloBE Rules. The draft user guide and XML Schema are designed to both facilitate domestic GIR filings and to be the technical format for exchanging GIR information between tax administrations. The consultation was held from 10 July to 19 August 2024, with the comments of 18 respondents published.

Thailand

To Sign Multilateral Instrument for Pillar 2 Subject to Tax Rule (proposed)

On 27 August 2024, the Thai Cabinet approved a letter of intent to sign the Multilateral Convention to Facilitate the Implementation of the Pillar Two Subject to Tax Rule (STTR MLI). The STTR MLI has been designed to help developing countries protect their tax base and allows for the implementation of the STTR in existing bilateral tax treaties without the need for bilateral negotiations. It includes provisions to allow source jurisdictions to “tax back” where defined categories of intra-group covered income are subject to nominal corporate income tax rates below the STTR minimum rate of 9% and domestic taxing rights over that income have been ceded under a tax treaty. For example, if a payor jurisdiction can impose a 5% withholding tax on a payment of covered income under a treaty and the recipient is subject to a 1% nominal tax rate, the payor jurisdiction retains the 5% withholding tax right and can impose an additional tax under the STTR equal to 3% of the covered income amount (9% – 5% – 1% = 3%). The STTR takes priority over the GloBE Rules (IIR and UTPR) and is creditable as a covered tax under those rules.

Germany

Amending Minimum Tax Law to Implement BEPS Inclusive Framework Administrative Guidelines on CbC Safe Harbor and Other Matters (proposed)

The German Ministry of Finance has published a discussion draft of a draft law to amend the Law implementing Council Directive (EU) 2022/2523 on ensuring a global minimum level of taxation. The Ministry notes that the BEPS Inclusive Framework issued two new administrative guidelines in December 2023 and June 2024, which require an adjustment of the minimum tax law. Germany has committed to implementing such administrative guidelines within 24 months of publication.

Although the June 2024 guidelines are mentioned by the Ministry, the discussion draft is focused on the December 2023 guidelines, including confirmation of the application of the CbC safe harbor, as well as provisions to avoid circumvention arrangements in the CbC safe harbor. Further, the provision on the right to capitalize pursuant to Section 274 of the German Commercial Code has been reflected in the system of minimum taxation. The draft also provides for a large number of editorial changes (adjustments to the wording of the EU Directive, reference errors, etc.) as well as other important administrative simplifications.

Bahamas

Consulting on Draft Legislation for a Pillar 2 Qualified Domestic Top-Up Tax (proposed)

The Bahamas Government has launched a public consultation on draft legislation for a Pillar 2 Qualified Domestic Minimum Top-Up Tax (QDMTT) for in-scope MNEs operating within the Bahamas, the Domestic Minimum Top-Up Tax Bill 2024. The consultation paper notes that during the various discussions undertaken with the private sector, it has been made clear to the Government that MNE groups would rather pay tax on their Bahamian profits in the Bahamas than elsewhere through an income inclusion rule (IIR) or undertaxed profits rule (UTPR). As such, the Government is seeking to implement a QDMTT and will not be implementing an IIR or UTPR at this time. The Government is inviting comments to this consultation by 16 September 2024, to enable the finalization of the draft legislation for submission to Parliament by 9 October 2024. Click the following link for the Government page on Pillar 2 for more information.

Jersey

Pillar 2 Global Minimum Tax Laws Lodged in Jersey States Assembly (proposed)

The Jersey States Assembly has published the draft laws for the implementation of the Pillar 2 global minimum tax in Jersey, which were lodged on 14 August 2024 and are scheduled to be debated on 1 October 2024. The draft laws include the following:

• Draft Multinational Taxation (Global Anti-Base Erosion – IIR Tax) (Jersey) Law 202-; and
• Draft Multinational Corporate Income Tax (Jersey) Law 202-.

Addendums to the laws were also published, which contain laws to give the primary laws immediate effect. Each of the primary laws contain detailed reports, including the following executive summary.

Executive summary

In May 2024, the Government of Jersey issued a statement confirming its intent to implement the new global OECD framework for a 15% minimum corporate income tax – called Pillar Two GloBE (Global Anti-Base Erosion rule).

The rules will apply only to multinational groups of enterprises (MNEs) with more than €750 million global annual revenue. All other businesses that are below the €750 million threshold will see no impact and will remain under Jersey’s existing corporate income tax regime.

For those large MNEs that are in scope of Pillar Two, the new rules will apply for accounting periods beginning on or after 1 January 2025.

The legislation accompanying this report is the package that provides the legal framework for implementation of Pillar Two in Jersey:

• IIR – The Draft Multinational Taxation (Global Anti-Base Erosion – IIR Tax) (Jersey) Law 202-
• MCIT – The Draft Multinational Corporate Income Tax (Jersey) Law 202-

The Government of Jersey has confirmed that it will not be implementing an Undertaxed Profits Rule at this time.

If the MCIT is passed by the States Assembly, Jersey companies and Jersey branches of in-scope multinational groups will pay an effective rate of 15% on their Jersey profits, from 2025. If the IIR is passed, Ultimate Parent Entities and/or Intermediate Parent Entities based in Jersey will be subject to a top-up tax on their non-Jersey profits, in certain limited circumstances.

As announced in the joint statement of May 2024, the Isle of Man and Guernsey are also intending to implement Pillar Two to the same timeline as Jersey.

This new OECD tax framework has been in development for more than four years. Throughout this period, the Government of Jersey has maintained close engagement with MNE groups impacted by these changes and their advisers, on the design of the most effective and appropriate legislative package for Jersey. The legislation contained herein demonstrates the Government’s commitment to implementing the OECD framework while maintaining an attractive business environment.

Work will continue over the coming months to ensure that taxpayers are provided with the highest standards of customer service by Revenue Jersey in implementing the new regime. The Government will also be carrying out further work, through the coordination of a tripartite group, to improve the attractiveness of the island’s business environment, economic growth and long term prosperity. The Government of Jersey recognises that ensuring the business environment – be that through the ease of doing business or the need for suitable products for all markets – will be fundamental to the future success of the sector.

Sweden

Swedish Ministry of Finance Refers Amendments to Pillar 2 Global Minimum Tax Law to Council on Legislation (proposed)

On 15 August 2024, the Swedish Ministry of Finance referred draft legislation to the Council on Legislation for amendments to the Act on Additional (Supplementary) Tax, which provided for the implementation of the Pillar 2 global minimum tax in accordance with Council Directive (EU) 2022/2523 of 14 December 2022. The amendments supplement the Act with additional and amended provisions to the extent that new legislation is necessary as a result of the administrative guidelines adopted by the BEPS Inclusive Framework, including the guidelines adopted on 1 February 2023, 13 July 2023, 15 December 2023, and 24 May 2024. This includes, for example, provisions to ensure that the regulatory framework meets the conditions for being an approved regulatory framework for national supplementary tax so that the regulatory framework can be covered by other countries’ simplification rules. Further, there are provisions on how artificial arrangements are to be treated in the calculation of the temporary simplification rule, a provision on deferred application of the supplementary rule, and a new currency rule. It is also proposed that the Act on Credits for Foreign Tax be amended so that foreign national supplementary tax can be offset against CFC taxation and in connection with the taxation of a permanent establishment abroad. Lastly, a transitional provision is proposed to provide that no additional tax report needs to be submitted before 30 June 2026, for tax years ending before 31 March 2025.

The amendments are proposed to enter into force on 1 January 2025. However, it is also proposed that reporting entities should be allowed to request that all or some of the provisions of the Act be applied for tax years beginning immediately after 31 December 2023.

Australia

Australian Senate Economics Legislation Committee Recommends Passage of Pillar 2 Global Minimum Tax Legislation (proposed)

On 14 August 2024, the Australian Senate Economics Legislation Committee issued its report on the provisions of the:

• Taxation (Multinational—Global and Domestic Minimum Tax) Imposition Bill 2024;
• Taxation (Multinational—Global and Domestic Minimum Tax) Bill 2024; and
• Treasury Laws Amendment (Multinational— Global and Domestic Minimum Tax) (Consequential) Bill 2024.

As previously reported, the legislation provides for the implementation of the Pillar 2 global minimum tax in Australia, including the Australian Domestic Minimum Tax (DMT) tax, Australian Income Inclusion Rule (IIR) tax, and Australian Undertaxed Profits Rule (UTPR) tax. In its report, the Committee recommends that the bills be passed.

Canada

Consulting on Legislation for Additional Budget 2024 Measures Including Pillar 2 UTPR (proposed)

Canada’s Department of Finance has issued a release announcing the launch of a public consultation on legislation for additional measures for Budget 2024. As previously reported, Canada already enacted several budget measures in June 2024, including the Global Minimum Tax Act, which provides for the implementation of an Income Inclusion Rule (IIR) and a Qualified Domestic Minimum Top-up Tax (QDMTT) with effect for fiscal years beginning on or after 31 December 2023. The new legislation will supplement this with the Undertaxed Profits Rule (UTPR) with effect for fiscal years beginning on or after 31 December 2024. The legislation also incorporates additional OECD administrative guidance for the Pillar 2 rules.

The UTPR and other measures are outlined in the release as follows:

Government consults Canadians on Budget 2024 measures to deliver fairness for every generation

August 12, 2024 – Ottawa, Ontario – Department of Finance Canada

Budget 2024 is part of the federal government’s plan to deliver generational fairness by unlocking the door to a good middle class life for younger Canadians and drive economic growth for workers in a way that lifts up all Canadians.

Today, the federal government is moving forward with consultations to advance key budget priorities to build more homes, boost economic growth, improve tax fairness, and ensure Canada’s financial sector works for all Canadians.

The Department of Finance Canada is consulting on budget priorities including:

Measures to Build More Homes

• Removing the GST for co-operative housing built for the long-term rental market;
• Incentivizing more rental housing construction through a new 10 per cent Accelerated Capital Cost Allowance, for projects beginning construction on or after April 16, 2024, and before January 1, 2031, and completed by January 1, 2036; and,
• Modifying mortgage insurance rules to make it easier for Canadians to add secondary suites to their homes.

Measures to Boost Economic Growth

• Encouraging entrepreneurship by creating the Canadian Entrepreneurs’ Incentive to reduce the inclusion rate to one-third on a lifetime maximum of $2 million in eligible capital gains;
• Delivering the Clean Electricity investment tax credit;
• Expanding eligibility for the Clean Technology investment tax credit and the Clean Electricity investment tax credit to support the use of waste biomass to generate heat and electricity;
• Further supporting investments in critical minerals through updates to the Clean Technology Manufacturing investment tax credit; and,
• Helping Canadian businesses invest in innovation and productivity enhancing assets, such as IT infrastructure, with a new Accelerated Capital Cost Allowance, available for investments made by January 1, 2027.

Measures to Improve Tax Fairness

• Increasing the capital gains inclusion rate from one-half to two-thirds on capital gains realized annually above $250,000 for Canadians and on all capital gains realized by corporations and most types of trusts, as of June 25, 2024;
• Increasing the Lifetime Capital Gains Exemption from $1 million to $1.25 million, as of June 25, 2024;
• Helping employees become owners by exempting from taxation the first $10 million in capital gains realized on the sale of a business to an eligible Employee Ownership Trust or Worker Co-operative;
• Ensuring that large, multinational corporations pay their fair share, by introducing the Undertaxed Profits Rule, which implements a minimum effective tax rate of 15 per cent on their profits wherever they do business;
• Providing exemptions from the Excessive Interest and Financing Expenses Limitation rules for purpose-built rental housing providers and regulated utility providers serving Canadians;
• Amending the Alternative Minimum Tax rules to further incentivize investment in Canada’s mining sector by allowing Canadians to fully claim resource expense deductions – a measure that would support good jobs and ensure Canada’s mining sector can continue to thrive;
• Ensuring Canadians who rent a home are not held responsible for their non-resident landlords’ unpaid taxes; and,
• Clarifying bare trust reporting rules to significantly reduce the number of Canadians with bare trusts who would have to file, and ease the related administrative burden.

Measures to Ensure Canada’s Financial Sector Works for All Canadians

• Providing Canadians with safe and secure access to innovative financial tools, such as reporting on-time rent payments to improve credit scores, by establishing Canada’s Consumer-Driven Banking Framework;
• Protecting Canadians from predatory lenders by strengthening the Criminal Code; and,
• Advancing the next phase of the financial institutions’ statutes review.

Share Your Feedback

The government invites all interested Canadians and stakeholders to email their comments to consultation-legislation@fin.gc.ca by September 11, 2024, unless otherwise indicated below.

The Capital Gains Inclusion Rate and Lifetime Capital Gains Exemption consultation will remain open until September 3, 2024. These measures build upon the Ways and Means Motion tabled on June 10, 2024, as well as the accompanying backgrounder entitled “Capital Gains Inclusion Rate” published on the same day.

Submissions on the following measures should be sent to the respective address:

• Secondary Suites: consultation-housing-logement@fin.gc.ca
• Canada’s Consumer-Driven Banking Framework: obbo@fin.gc.ca
• Protecting Canadians from Predatory Lending: consultationconsumeraffairs.consultationconsommation@fin.gc.ca
• Financial Institutions’ Statutes Review: legreview-examenleg@fin.gc.ca

References to “Announcement Date” in all draft proposals and explanatory notes refer to today’s release date.

Finland

Consulting on Amendments to the Minimum Tax Act (proposed)

Finland’s Ministry of Finance has announced the launch of a public consultation on the amendments to the so-called Minimum Tax Act, which was approved at the end of 2023 and provides for the implementation of the Pillar 2 global minimum tax in accordance with Council Directive (EU) 2022/2523 of 14 December 2022. The proposed amendments provide for the incorporation of the latest OECD administrative guidance on the Pillar 2 rules, including amendments to clarify certain aspects of the law, simplify the method for calculating the minimum tax, implement the transitional UTPR safe harbor, and others. The deadline for comments is 6 September 2024.

Ireland

Revenue Issues New and Updated Guidance on the Pillar 2 Global Minimum Tax (approved)

Irish Revenue has issued eBrief No. 213/24 concerning new guidance on the administration of the Pillar 2 global minimum tax, as well as updated guidance on the operation of the Pillar 2 rules.

Revenue eBrief No. 213/24 Global Minimum Level of Taxation for Multinational Enterprise Groups and Large-Scale Domestic Groups in the Union – Administration

Tax and Duty Manual (TDM) Part 04A-01-01 is a new manual which contains an overview of the Administration of Pillar Two.

In addition to this Administration of Pillar Two TDM, the recently published Part 04A-01-02 has been updated. TDM 04A-01-02 now contains guidance on the operation of the Pillar Two rules along with the detailed correlation table which cross references the legislation contained within Part 4A of the TCA 1997 with:

• the relevant article of the EU Minimum Tax Directive,
• the relevant article of the OECD Model Rules,
• OECD Commentary, where relevant, and
• OECD Administrative Guidance, where relevant.

U.S.

IRS and Treasury Propose Rules Regarding Dual Consolidated Losses and the Treatment of Certain Disregarded Payments (proposed)

The U.S. IRS and Treasury have issued a Notice of proposed rulemaking on Rules Regarding Dual Consolidated Losses and the Treatment of Certain Disregarded Payments, including in relation to the Pillar 2 GloBE rules. The notice was published in the Federal Register on 7 August 2024, with comments due by 7 October 2024.

SUMMARY:

This document contains proposed regulations that address certain issues arising under the dual consolidated loss rules, including the effect of intercompany transactions and items arising from stock ownership in calculating a dual consolidated loss. The proposed regulations also address the application of the dual consolidated loss rules to certain foreign taxes that are intended to ensure that multinational enterprises pay a minimum level of tax, including exceptions to the application of the dual consolidated loss rules with respect to such foreign taxes. Finally, the proposed regulations include rules regarding certain disregarded payments that give rise to losses for foreign tax purposes.

DATES:

Written orelectronic comments and requests for a public hearing must be received by October 7, 2024.

Bermuda

Consulting on Administrative Provisions for New Corporate Income Tax (approved)

The Government of Bermuda has announced the release of the First Public Consultation on the Corporate Income Tax Administrative Provisions. The consultation paper covers the administration provisions for Bermuda’s new 15% corporate income tax that will generally apply from 1 January 2025 for taxpayers in Bermuda that fall within the scope of the Pillar 2 global minimum tax (GloBE) rules. The deadline for comments is 4 September 2024, with a second consultation planned for later in the year.

Introduction of Corporate Income Tax Administrative Provisions

Today the Government of Bermuda issued a public consultation paper intended to provide Bermuda stakeholders with a preliminary, high-level summary of the proposed taxpayer compliance framework (the “Administrative Provisions”) and to obtain public feedback on the proposals.

The Corporate Income Tax Act 2023 (the “Principal Act”) was enacted in December 2023 and provides that Bermuda Constituent Entity Groups (“BCE Groups”), comprised of one or more Bermuda Constituent Entities (“BCEs”) of an In-Scope MNE Group, are subject to Bermuda corporate income tax (“CIT”) concerning fiscal years beginning on or after January 1, 2025. In addition to the various technical provisions relevant to the determination of the CIT liability of a BCE Group, the Principal Act introduced the concept of a Bermuda CIT return to be filed by a Filing BCE on behalf of a BCE Group.

The CIT will become effective in 2025, providing MNEs the necessary time to adjust their systems as they transition to paying a corporate income tax in Bermuda.

“We appreciate the feedback received from previous consultation periods, and directly from industry leaders, and I am confident that our new CIT regime represents an attractive path forward for Bermuda that is in line with international tax rules,” said Premier and Finance Minister David Burt.

“The Administrative Provisions aim to balance effective tax collection with minimizing administration and taxpayer compliance costs.

“The Government of Bermuda, through the Ministry of Finance will continue to collaborate with all stakeholders to ensure that Bermuda remains an effective and cooperative partner in addressing global tax matters.”

This First Public Consultation period will run until September 4, 2024. Submissions received after this date may not be considered. It is proposed that there will be a second Public Consultation later in the year enclosing draft legislation incorporating the results of this Public Consultation for further comment.

Consultation Paper Responses and Comments should be submitted by email to: FINANCE@gov.bm. Respondents should include “Corporate Income Tax Administration” in the subject line.

The Government welcomes feedback from all stakeholders on these proposals, including comments and suggestions for improvements.

UK

Updates Guidance on Preparing for the Multinational Top-up Tax and the Domestic Top-up Tax (approved)

UK HMRC published updated guidance on How to prepare for the Multinational Top-up Tax and the Domestic Top-up Tax, dated 6 August 2024. The main updates include changes to Section 4. HMRC online service and Section 5. Guidance, as well as a new subsection on common misconceptions under Section 6. Pillar 2 scope and compliance obligations, and a new Section 7. Transitional safe harbour. The new and updated guidance is as follows:

4. HMRC online service

We’re developing a new online service to enable businesses to meet their MTT and DTT obligations. This will include the ability to register, file returns and make payments. We are releasing the service in stages.

The first stage, which will allow you to  register for the new taxes, is now available, well in advance of your registration deadline. The deadline to register is 6 months from the end of the accounting period in which your group became a qualifying group.

You can now register for the Report Pillar 2 top-up taxes digital service using your Government Gateway account. Make sure you are using your sign in details and not your tax adviser’s credentials. To set up a Government Gateway account or sign in, see HMRC online services: sign in or set up and account.

To register, you will need to provide HMRC with:

• the name and registered address for the Ultimate Parent Entity (UPE)
• the name and registered address for the filing member, if it is not the UPE
• if either of these are a UK limited company or limited liability partnership, you must also provide the company registration number (CRN) and Unique Taxpayer Reference (UTR)
• whether the group you are registering only has entities located in the UK, or in the UK and other jurisdictions
• the start and end date of the group’s accounting period
• contact details and preferences, for 1 or 2 individuals or teams in the group
• the name and registered address for the UPE
• the name and registered address for the filing member, if it is not the UPE
• if either of these are a UK limited company or limited liability partnership, you must also provide the CRN and UTR
• whether the group you are registering only has entities located in the UK, or in the UK and other jurisdictions
• the start and end date of the group’s accounting period
• contact details and preferences, for 1 or 2 individuals or teams in the group

When you register, you’ll get a Pillar 2 reference number. Please make a note of it and the date that you register. You may wish to use the print page function to save a PDF, as you will not receive a registration email confirmation at this stage of development of the online service. You’ll need this information if you want to contact us at a later date.

We expect to release the next stage of the online service in late 2024. This will allow businesses to make payments on account and authorise agents to carry out future tasks on their behalf.

We are working with third-party software providers to provide businesses with the ability to submit UK Pillar 2 returns using existing third-party software products. Further information will be provided on this in future communications. We also welcome additional businesses helping us to further develop the online service. Please get in touch if you would like to take part.

5. Guidance

5.1 HMRC guidance

We published draft guidance in December 2023, including updates to sections on chargeability, scope and administration that were published in June 2023. This guidance includes a new section on:

• calculating the effective tax rate
• applying MTT and DTT to particular types of entity

The consultation period for this guidance has now ended. However, if you have any additional feedback on this draft guidance, please send this to us and include the page number where relevant. We’re reviewing the responses we received so far which will feed into a future guidance update.

We’ll publish further draft guidance in the coming months. This will include:

• a section on determining top-up tax amounts (covering chapters 6 to 8 of Part 3 of Finance (No.2) Act 2023)
• more guidance about particular types of entities and structures

5.2 OECD guidance

The OECD has recently published further Agreed Administrative Guidance (June 2024) and Consolidated Commentary to the Global Anti-Base Erosion Model Rules, incorporating the Agreed Administrative Guidance that has been released by the Inclusive Framework between March 2022 and December 2023. There are also updated ‘Illustrative Examples’.

OECD guidance:

• Agreed Administrative Guidance – published 17 June 2024
• Consolidated Commentary to the Global Anti-Base Erosion Model Rules (2023) – published 25 April 2024
• Illustrative Examples – published 25 April 2024
• Agreed Administrative Guidance – published December 2023

Other useful publications on the  OECD website:

• GloBE Model Rules
• Pillar Two Rules in a Nutshell
• Key Operating Provisions of the GloBE rules - published 20 December 2021
• Safe Harbours and Penalty Relief: GloBE Rules - published 20 December 2022
• Administrative Guidance on the GloBE rules - published 2 February 2023

6.4 Common misconceptions

Some businesses have estimated that they won’t have to pay any MTT and/or DTT but have mistakenly assumed that this means they won’t have UK compliance obligations. As with other UK direct taxes, if your business is in scope, you’ll still have reporting obligations, even if there’s no tax liability. This means you’ll need to register for Pillar 2 top-up taxes, file returns and make notifications. This applies to both UK and non-UK headed groups, regardless of whether the jurisdiction of the ultimate parent entity implements Pillar 2.

The group’s filing member will need to submit a UK Pillar 2 Self Assessment return and a GloBE Information Return (GIR) to HMRC for every accounting period that the group is within scope of MTT and DTT – or DTT only, if the group is a domestic-only group. The filing member does not need to be UK resident. However, if the filing member is not UK resident, HMRC will not be able to automatically exchange any GIR. This also applies to businesses where the UK presence is limited to a UK branch.

7. Transitional safe harbour

You may be able to take advantage of the transitional Pillar 2 safe harbour, to make it easier for you to administer the new taxes. Qualifying for a safe harbour doesn’t exclude you from registering and filing returns.

A transitional safe harbour aims to reduce the compliance obligations for groups in the first years of the regime. It allows groups to use figures calculated for the purposes of Country-by-Country (CbC) reporting to assess if they’re likely to face a top-up tax under MTT for a territory. If these simplified calculations show that one of the safe harbour tests is met, the group is treated as having no tax charge and doesn’t have to perform the full effective tax rate calculation.

You’ll find this in our draft guidance at MTT15900 onwards.

The safe harbour applies on a territory-by-territory basis and consists of three tests. The tests are calculated based on qualified CbC report figures. A CbC report will be a qualifying report in respect of a territory if, for that territory, the information is prepared based on qualified financial statements. For the definition of qualified financial statements, see MTT15920.

A group only needs to meet one of the following tests to qualify for the safe harbour:

• the threshold test – where revenue of members in a territory is less than €10 million and profit before tax is less than €1 million (or a loss)
• the simplified effective tax rate test – where the simplified effective tax rate (ETR) of members in a territory is at least the ‘minimum’. The ETR is calculated as the members’ qualifying Income Tax expense divided by the aggregate profit (or loss) before Income Tax for those members. The ‘minimum’ ETR is 15% for accounting periods beginning in 2023 or 2024, 16% for accounting periods beginning in 2025 and 17% for accounting periods beginning in 2026
• the routine profits test – where the aggregate profit (or loss) before Income Tax of members in a territory is not greater than the qualified substance-based income exclusion (SBIE) for the territory. The SBIE is calculated using the model rules

7.1 Transitional safe harbour – election

A group must make an election for the safe harbour to apply for a territory in an accounting period. This election is made annually on the GIR.

If a group has already submitted full MTT calculations for a territory, they can’t make the election for subsequent periods. This is because the purpose of the transitional safe harbour is to reduce the compliance burden for groups first entering the scope of MTT.

7.2 Transitional safe harbour – DTT and groups not required to prepare a CbC report

If a group is in scope of MTT but not in scope of CbC reporting they won’t have prepared a CbC report. In these cases, the group can use the figures that would have appeared in a qualifying CbC report had they been required to prepare one.

The transitional safe harbour applies for DTT purposes in the same way as it does for MTT, with some exceptions for wholly domestic groups and entities. For more information, see our draft guidance at MTT15970.

7.3 Transitional safe harbour – other things to note

You’ll need to make some adjustments to the CbC report figures for the purpose of the transitional safe harbour. These adjustments make sure the calculations for the safe harbour tests are more closely aligned to the calculations that would normally be made for MTT. For more information, see our draft guidance at MTT15925.

Puerto Rico

Report Released on Pillar 2 Global Minimum Tax in Puerto Rico (proposed)

Puerto Rican nonprofit Espacios Abiertos (Open Spaces) has announced the release of a report that evaluates the impact of the 15% Pillar 2 Global Minimum Tax (GMT) in Puerto Rico and quantifies the potential revenue the island would forgo if appropriate legislation is not enacted in a timely manner. The report finds that the implementation of the QDMTT, in particular, has the potential to generate up to USD 3.8 billion annually, which is equivalent to approximately 1/3rd of the general budget.

Click the following link for an English-language version of the report. The English-language executive summary of the report is as follows:

EXECUTIVE SUMMARY

INTRODUCTION

This report, prepared by Espacios Abiertos (EA), analyzes the effects of the 15% Global Minimum Tax (GMT) in Puerto Rico, evaluating both the opportunities and risks it presents. The digitization and globalization of the economy have allowed multinationals to shift profits to low-tax jurisdictions, resulting in significant tax revenue losses globally. This situation has led over 140 economies to cooperate to implement a GMT to ensure more equitable taxation and sufficient funding for essential public services.

GLOBAL CONTEXT

The OECD and the G-20 have developed the BEPS inclusive framework with 147 jurisdictions committed to reforming international taxation through two pillars. Pillar I seeks to reassign taxing rights over the profits of large multinationals to the markets where their sales occur. Pillar II, which includes the Global Minimum Tax (GMT) and the Subject to Tax Rule (STTR), establishes a minimum tax of 15% for multinationals with consolidated annual revenues exceeding 750 million euros. This report focuses on Pillar II and its implications for Puerto Rico.

LOCAL CONTEXT

Historically, Puerto Rico has used its limited tax autonomy to attract investment through tax incentives and tax decrees, as well as federal policies like the now defunct Section 936. The elimination of this section resulted in a decrease in investment and employment on the island. In response, laws such as Law 154 of 2010 and Law 52 of 2022 were enacted to stabilize local tax policy. Implementing the GMT in Puerto Rico could significantly increase tax revenues in the short term but also pose long-term risks if the island does not adapt its economic model to mitigate these impacts.

PILAR II AND GLOBE RULES

Pillar II aims to ensure that multinationals pay a minimum tax of 15% on their global profits. The GloBE rules include the Income Inclusion Rule (IIR), the Qualified Domestic Minimum Top-up Tax (QDMTT), and the Under-Taxed Payment Rule (UTPR). These rules determine how the GMT will be implemented and in what order to ensure adequate global tax collection.

DATABASES AND METHODOLOGY

The study combines data from various sources, including the OECD, Orbis, OpenCorporates, the Puerto Rico Department of State, the U.S. Bureau of Labor Statistics, and PwC. The methodology follows the approach of previous studies adapted to the Puerto Rican context.

RESULTS

The report projects potential tax revenues for 2024 and 2025 under different scenarios. If Puerto Rico implemented the QDMTT, it could collect up to $3,843.1 million annually, primarily from U.S. foreign corporations. However, if the QDMTT is not implemented, other jurisdictions could claim part of these revenues through the IIR and UTPR rules.

1. Additional gains in Puerto Rico with QDMTT (the island would collect up to $3,843.1 million in 2025):
   • $3,765.5 million from U.S. corporations.
   • $60.0 million from European corporations.
   • $17.6 million from corporations in other countries.
2. Additional gains in other jurisdictions without QDMTT (other jurisdictions would collect $3,569.7 million in 2025):
   • $69.0 million under IIR in 2024.
   • $3,569.7 million ($3,492.3 million under UTPR) from 2025.

DETAILED ANALYSIS

The study details how the implementation of the GMT in Puerto Rico would affect the island in the short and long term. In the short term, implementing the QDMTT would ensure that Puerto Rico captures a significant portion of the tax revenues generated by foreign corporations established on the island. In the long term, it is crucial that Puerto Rico adapts its tax policy to ensure the island’s economic and fiscal sustainability.

1. SHORT-TERM IMPACT: Implementing the QDMTT would allow Puerto Rico to collect significant additional tax revenues. These revenues could be partially allocated to non-tax incentives for multinationals and invested in various budgetary purposes, including strategic sectors, to diversify the island’s productive base and reduce dependence on tax incentives.
2. LONG-TERM IMPACT: If the GMT achieves its global goal of reducing profit shifting to low-tax jurisdictions, Puerto Rico could face challenges in maintaining its attractiveness as an investment destination for multinationals. Therefore, it is crucial that the island develops a long-term strategy that combines non-tax incentives with policies that promote investment in alternative economic activities.

CONCLUSIONS

The report concludes that implementing the QDMTT in Puerto Rico could generate significant additional tax revenues. However, the allocation of these revenues will depend on public policy decisions regarding the proportion allocated to non-tax incentives and other budgetary purposes.

1. REVENUE COLLECTION: If Puerto Rico implemented the QDMTT, it could collect up to $3,843.1 million annually. However, if not implemented, other jurisdictions could claim part of these revenues ($3,569.7 million), resulting in a significant loss in collections for the island.
2. PUBLIC POLICY: Puerto Rico’s public policy must determine how these additional revenues will be allocated, balancing non-tax incentives and other budgetary priorities.
3. LONG-TERM ADAPTATION: To ensure economic and fiscal sustainability, Puerto Rico must develop a long-term strategy that combines non-tax incentives with policies that promote investment in alternative real economic activities.

RECOMMENDATIONS

1. OECD AND FEDERAL GOVERNMENT OPINION: Obtain an official opinion on the compliance of the GloBE rules in Puerto Rico.
2. ADHERENCE TO THE BEPS FRAMEWORK: Evaluate adherence to the BEPS inclusive framework and decide on the implementation of Pillar II before 2025.
3. LOCAL LEGISLATION (QDMTT): Enact legislation on the GMT and GloBE rules before the end of 2024.
4. EVALUATING COMMISSION: Establish an independent evaluating commission to analyze the impact of the GMT in Puerto Rico.
5. COST QUANTIFICATION: Quantify the cost of any non-tax incentive (QRTCs) project before its implementation.
6. AVOID PROPORTIONAL BENEFITS: Avoid benefits that could be considered proportional returns to the complementary tax.
7. MAXIMUM INCENTIVE LIMIT: Establish an annual maximum limit on non-tax incentives.
8. ELIMINATE TRANSFERABILITY: Eliminate the possibility of transferring refundable tax credits.
9. ELIMINATE VOLUNTARINESS: Eliminate the voluntary nature of the complementary tax to ensure its accreditation by the OECD.
10. COMPREHENSIVE TAX REFORM: Replace tailored tax decrees with comprehensive tax reform.
11. MINIMUM TAX FOR LOCAL MULTINATIONALS: Evaluate the impact of a 15% minimum tax for local multinationals with revenues exceeding 750 million euros.

These recommendations aim to ensure that Puerto Rico can leverage the opportunities presented by the GMT, mitigate risks, and guarantee long-term sustainable fiscal policy.

Turkey

Enacts Tax Reform Legislation Including Pillar 2 Global Minimum Tax (approved)

The Turkish Revenue Administration has announced the publication of Law No. 7524 in the Official Gazette on 2 August 2024. The law contains various tax reform measures, including measures for the implementation of the Pillar 2 global minimum tax in line with the GloBE rules approved by the BEPS Inclusive Framework. This includes a domestic minimum top-up tax, an income inclusion rule (IIR), and an undertaxed profits rule (UTRP) that apply to MNE groups with annual group revenue exceeding the Turkish lira equivalent of EUR 750 million in at least two of the four preceding accounting periods (years). The domestic minimum top-up tax and the IIR apply for accounting periods beginning on or after 1 January 2024, while the UTPR applies for accounting periods beginning on or after 1 January 2025. The law also includes certain safe harbors, including the transitional country-by-country reporting safe harbor and the transitional UTPR safe harbor.

Some of the other important measures of the law include:

• The introduction of a domestic minimum corporate tax (separate from the global minimum tax), providing that the corporate tax calculated cannot be lower than 10% on corporate income before deductions and exemptions, with an exemption from the minimum tax for companies in the first three years of operation;
• An increase in the corporate tax rate from 25% to 30% on profits obtained within the scope of the Build-Operate-Transfer Model and Public-Private Partnership Projects;
• The introduction of a new condition for the existing income tax exemption for investment funds and partnerships investing in real estate, which provides that for the exemption to apply, at least 50% of income from real estate must be distributed as a profit distribution (dividends) by the end of the second month following the submission of the corporate tax return for the accounting period in which the income was earned;
• A change in the exemption for businesses operating in free zones, providing that the exemption is limited to export income and no longer applies to income from domestic sales; and
• New rules providing that where VAT amounts to be deducted are carried forward more than 5 years without deduction, it is possible to remove the carried forward amount from the VAT deduction account and to take them into account as an expense for the determination of income or corporate tax.

The other measures of the law generally apply from 2025, except for the VAT measure which takes effect on 1 January 2023.