July 2024: BEPS Pillar 2 Highlights

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• Belgium updates
• Pillar 2 highlights of the June 2024
  • Malaysia
  • Australia
  • Singapore
  • Lithuania
  • Denmark
  • Latvia
  • Canada
  • Barbados
  • Spain
  • Norway
  • OECD

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Belgium Updates:

Belgium’s Federal Public Service (SPF) Finances issued a release on 29 May 2024 announcing the publication of the Royal Decree of 15 May 2024, which regulates the new notification requirements for large multinational and domestic groups subject to the Pillar 2 global minimum tax rules in Belgium. As previously reported, such groups are required to register with the Crossroad Bank for Enterprises register (Banque-Carrefour des Entreprises – BCE). In order to register, a group must notify the SPF Finances through a notification submitted via MyMinfin (My professional tools > Pillar 2 – Mes outils professionnels > Pilier 2). The notification must be submitted no later than 30 days after the beginning of the tax year in which the group falls within the scope of the Law of 19 December 2023. However, for those that have already started or will soon start their first tax year, the notification deadline is within 45 days after the publication of the Royal Decree of 15 May 2024 in the Belgian Official Gazette, i.e., the initial deadline is 13 July 2024.

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Pillar 2 highlights of the June 2024

Malaysia:

The Inland Revenue Board of Malaysia updated its guidance page on the Pillar 2 GloBE rules, including the addition of:

• Implementation Timeline of Global Minimum Tax (GMT) in Malaysia; and
• Frequently Asked Questions (FAQ) on GMT.

Regarding implementation, an infographic includes the following key dates:

• 1 January 2025 – Effective Date for MNE groups with a consolidated financial statement period beginning on or after 1 January 2025;
• 31 December 2025 – Closing date for the first MNE group’s consolidated financial statement for the year 2025;
• 30 June 2027 – Submission of the Top-up Tax Return (TTR), the Information Return (GIR), and the payment of the top-up tax; and
• January 2028 – Proposed for a risk assessment and audit review process.

With respect to the 30 June 2027 deadline for returns and payment, it is noted that this reflects the transitional deadline of 18 months after the closing date of the consolidated financial statement for the first year that an MNE group comes within the scope of the GMT. This and other aspects of the GMT in Malaysia are explained in the FAQ

Australia:

The Australian Taxation Office (ATO) has published on the implementation of the OECD/G20 Two Pillar Solution for multinational businesses in Australia, the Global and domestic minimum tax. Although the measure is not yet law, the guidance notes, among other things, that the ATO is already working on implementation, which includes designing domestic returns and developing the systems required to administer the measure in advance of the first lodgements, due by 30 June 2026.

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Global and domestic minimum tax

The implementation of the OECD/G20 Two Pillar Solution for multinational businesses in Australia.

What are the Pillar Two GloBE Rules

The Global Anti-Base Erosion Rules (GloBE Rules) are a key element of the Organisation for Economic Co-operation and Development (OECD)/G20 Inclusive Framework’s Two-Pillar Solution to address the tax challenges arising from the digitalisation of the economy. The aim, to set a minimum on tax rates to discourage large multinational enterprise groups (MNE groups) from moving their profits to countries where they must pay less tax.

The GloBE Rules:

• provide for a co-ordinated system of taxation intended to ensure large MNE Groups are subject to a global minimum tax rate of 15% in each of the jurisdictions where they operate
• are model rules developed by the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting to inform the design of domestic legislation
• consist of 2 interlocking rules
  • The Income Inclusion Rule (IIR) acts as the primary rule which allows jurisdictions to apply a top-up tax on multinational parent entities located in a jurisdiction if the group’s effective tax rate in another jurisdiction is below 15%
  • The Undertaxed Profits Rule (UTPR) acts as a backstop rule which allows jurisdictions to apply a top-up tax on constituent entities located in a jurisdiction if the group’s effective tax rate in another jurisdiction is below 15% and where the profit is not brought into charge under an IIR.
• provide the option for jurisdictions to implement a domestic minimum tax, giving a jurisdiction the option to claim primary rights to impose top-up tax over any low-taxed profits in that jurisdiction in priority over the IIR and UTPR.

Pillar Two implementation in Australia

On 9 May 2023, as part of the 2023-24 Budget, the Government announced it will implement key aspects of Pillar Two of the OECD/G20 Two-Pillar Solution to address the tax challenges arising from the digitalisation of the economy. The Government has proposed changes to implement a global minimum tax and a domestic minimum tax.

Status of ATO implementation

Although the measure is not yet law, steps are being taken to progress this before it becomes law. This includes designing domestic returns and developing the systems required to administer the measure in advance of the first lodgements, due by 30 June 2026.

Also the ATO has done early public consultation to:

• provide preliminary education and awareness about the Budget announced Pillar Two GloBE measures
• seek feedback on administrative, compliance and systems’ impacts associated with the implementation of the new global and domestic minimum tax.

From 1 February 2024, they have held a total of 25 consultation meetings with MNE Groups, industry groups, and Digital Service Providers (DSPs).

Consultations with DSPs are continuing and they are currently considering future ATO-led consultations.

Key consultation feedback and findings

The overarching theme from consultations so far includes the:

• varying degrees of readiness for when the rules start
• significant compliance challenges the GloBE Rules pose
• potential technical difficulties in capturing the data points the GloBE Information Return (GIR) requires.

Capturing data points for the GIR

The feedback received so far indicates that for many MNE Groups:

• the data points needed for the GIR are extensive and may require system changes or manual interventions
• given the system updates needed, one key challenge for businesses is the amount of time and resources required to set up their systems to meet their obligations.

Australian specific administration and interpretation issues

Stakeholders raised a variety of topics about our administration and interpretation of the GloBE Rules, when enacted, including:

• potential application of penalties
• safe harbours, with several consultees indicated there will likely be significant reliance on safe harbours, developed by the OECD/G20 Inclusive Framework on BEPS
• interpretation questions relating to potential Australian income tax regime interactions.

In some instances, there was a misconception that they will be able to provide further concessions and simplifications beyond the OECD/G20’s GloBE Rules to reduce compliance costs. It was communicated to consultees that, to ensure qualified status, are unable to provide administrative concessions or simplifications that are inconsistent with those provided for in the OECD/G20’s GloBE Rules, Commentary and Administrative Guidance.

With the release of the draft legislation, they propose to carry out further public consultation in due course. Several consultees indicated they were seeking to review the legislation and Explanatory Memorandum before identifying potential topics in respect of our administration and technical interpretation.

Singapore:

The launch of public consultations on draft legislation for the introduction of the Pillar 2 global minimum tax and for the implementation of tax measures announced as part of the 2024 Budget Statement (previous coverage). The deadline for comments is 5 July 2024.

The key points of each consultation are as follows:

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Public Consultation on Proposed Multinational Enterprise (Minimum Tax) Bill and Subsidiary Legislation

SCOPE OF THE CONSULTATION

1. The proposed Bill and the subsidiary legislation will introduce the following key changes that apply to in-scope multinational enterprise (“MNE”) groups, defined as those with annual group revenue of 750 million euros or more in at least two of the four preceding financial years. The proposed changes will be effective for financial years commencing on or after 1 January 2025:

• Apply a DTT to in-scope MNE groups in respect of any low-taxed profits of their group entities that are operating in Singapore, to ensure that the effective tax rate imposed on an in-scope MNE group’s constituent entities located in Singapore is at least 15%.
• Apply the IIR, which is referred to as the Multinational Enterprise Top-up Tax (“MTT”) in the proposed legislation, to in-scope MNE groups that are parented in Singapore, in respect of any low-taxed profits of their group entities that are operating outside Singapore. This is to ensure that the effective tax rate imposed on an in-scope MNE group’s constituent entities located outside Singapore is at least 15%.

2. The proposed Multinational Enterprise (Minimum Tax) Bill, if passed into law, will be construed as one with the Income Tax Act 1947 (“ITA”). Certain provisions, such as administration, enforcement and appeals that apply under the ITA, will also apply to DTT and MTT, with modifications set out under the proposed Bill.

3. The key provisions for DTT and MTT include the following:

• Registration of in-scope MNE group. The ultimate parent entity of an in-scope MNE group must notify the Comptroller of its liability to be registered.
• Obligations for DTT. The ultimate parent entity of an in-scope MNE group must designate a constituent entity located in Singapore as the designated local DTT filing entity (“DFE”) for DTT purposes. The DFE must file a DTT return within 15 months after the end of each financial year (or 18 months after the end of the transition year). Any DTT payable must be paid no later than one month after the due date for the return. If the DFE fails to pay DTT, the DTT may be collected from the other constituent entities located in Singapore on a joint and several basis. Subject to conditions, in-scope MNE groups may also opt for certain constituent entities to be assessed separately on its allocated DTT.
• Obligations for MTT. The constituent entities of an in-scope MNE group must designate a constituent entity located in Singapore as the designated local Global Anti-Base Erosion (“GloBE”) information return filing entity (“GFE”) for MTT purposes. The GFE must file a GloBE information return in Singapore within 15 months after the end of each financial year (or 18 months after the end of the transition year) if a similar return has not been filed by a filing entity of the MNE group in another jurisdiction. If a similar return has been filed in another jurisdiction, the GFE must notify the Comptroller of the particulars of the filing entity and the jurisdiction where it is located. In addition, parent entities located in Singapore liable to MTT must file the MTT return within 15 months after the end of each financial year (or 18 months after the end of the transition year), and any MTT payable must be paid no later than one month after the due date for the return.

Proposed amendments to the ITA

4. The proposed Bill also contains amendments to the ITA. The amendments are intended to provide clarity and certainty on the income tax treatment of taxes imposed by Singapore and foreign jurisdictions under Pillar Two of the BEPS 2.0 initiative. These include whether these taxes are eligible for tax deduction and foreign tax credit, and whether they satisfy conditions for the foreign-sourced income exemption regime.

Proposed subsidiary legislation

5. The proposed subsidiary legislation provides details on the adjustments to the financial accounting net income or loss and the qualifying tax expenses, for the purposes of calculating the effective tax rate and top-up tax based on the GloBE Model Rules.

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Public Consultation on Proposed Income Tax (Amendment) Bill 2024

SCOPE OF THE CONSULTATION

Budget 2024 amendments

1. There are 15 proposed amendments to effect measures announced in the 2024 Budget Statement on 16 February 2024. Key amendments include the following:

• Corporate Income Tax (“CIT”) Rebate, with a CIT Rebate Cash Grant for eligible companies. To help companies manage rising costs, a CIT Rebate of 50% of tax payable will be granted for Year of Assessment (“YA”) 2024. Companies that have employed at least one local employee in 2023 will receive a minimum benefit of $2,000 in the form of a cash payout. The maximum total benefit that a company may receive is $40,000.
• Refundable Investment Credit (“RIC”). To enhance Singapore’s attractiveness for investments, MOF will introduce the RIC, which will support up to 50% of qualifying expenditures for qualifying activities on an approval basis. The credits are to be offset against CIT payable. Any unutilised tax credits will be refunded to the company in cash within four years.
• Personal Income Tax (“PIT”) Rebate. In view of cost-of-living concerns, a PIT Rebate of 50% of tax payable will be granted to all tax resident individuals for YA 2024. The rebate will be capped at $200 per taxpayer.
• Annual income threshold for dependant-related reliefs. To allow more taxpayers who are providing for dependant family members to enjoy dependant-related reliefs, while giving dependant family members the flexibility to do some work, the annual income threshold of a qualifying dependant or caregiver will be increased from $4,000 to $8,000 with effect from YA 2025.
• Overseas Humanitarian Assistance Tax Deduction Scheme (“OHAS”). To encourage giving towards overseas emergency humanitarian assistance causes, the OHAS will be piloted for four years from 1 January 2025 to 31 December 2028. The OHAS will provide individual and corporate donors with 100% tax deduction for qualifying overseas cash donations made through a designated charity and towards a fundraiser for emergency humanitarian assistance with a valid Fund-Raising for Foreign Charitable Purposes permit from the Commissioner of Charities. Tax deductions under OHAS will be capped at 40% of the donor’s statutory income.

Other proposed amendments

2. There are seven proposed amendments arising from MOF’s periodic review of Singapore’s income tax regime to better reflect policy objectives and to improve tax administration. They include the proposed amendments to: (i) expand the scope of qualifying securities lending or repurchase arrangements under section 10H of the ITA, and (ii) waive the requirement to furnish the Estimated Chargeable Income for individual sole-proprietors and partnerships from YA 2026 to YA 2030.

Lithuania:

Lithuania has published Order No. 2024-11391 of 21 June 2024 in the Official Gazette on the procedures for the submission of required information notices (notifications) in relation to the implementation of the Pillar 2 global minimum tax in accordance with Council Directive (EU) 2022/2523 of 14 December 2022. As previously reported, Lithuania has opted to defer the application of the main rules, including the income inclusion rule (IIR) and the undertaxed payment/profit rule (UTPR) and, as such, has only transposed provisions required by the Directive when the deferral option is taken. This includes relevant definitions, rules on the determination of the location of group members, reporting requirements, transitional rules in relation to the deferral, and certain other provisions. Order No. 2024-11391 establishes the procedures for the submission of required information notices (notifications). The notifications must be submitted (and revised) electronically via the State Tax Inspectorate (STI) portal and include notifications about the nomination of a designated filing (reporting) entity, notifications confirming the transmission of data to the designated filing entity, and notifications about the initial stages of a group’s international activity.

Both the law and order enter into force on 1 July 2024 and apply for fiscal years beginning on or after 31 December 2023. Click the following link for a notice issued by the STI regarding the adoption of the law for the global minimum tax and the order on the notification procedures.

Denmark:

Denmark has published Law No. 684 of 11 June 2024 in the Official Gazette, which introduces amendments to ensure that the Minimum Taxation Act fully meets the OECD’s model rules and administrative guidelines for the Pillar 2 global Minimum tax. In particular, safeguard rules are introduced to prevent groups from entering into circumvention arrangements with a view to utilizing the special transitional rule in the Minimum Taxation Act on the possibility of setting the surcharge at zero on the basis of the group’s country-by-country reports. Simplified calculation rules are also established for the application of the permanent exemption (derogation) provision (safe harbor), in accordance with the OECD’s administrative guidelines from December 2023.

In addition to the minimum tax amendments, Law No. 684 also provides for the amendment of the list of jurisdictions subject to Denmark’s defensive measures for non-cooperative jurisdictions, so that the list is in line with the EU’s list of non-cooperative tax jurisdictions. This includes the removal of the Bahamas, Belize, the Seychelles, and the Turks and Caicos Islands.

Law No. 684 enters into force on 1 July 2024, although the amendments to the Minimum Taxation Act are effective for fiscal years beginning on or after 31 December 2023.

Latvia:

Latvia published the Law on Ensuring a Global Minimum Tax Level for Large Enterprise Groups in the Official Gazette on 20 June 2024. The law entered into force the date after its publication, i.e., on 21 June 2024. As previously reported, Latvia has opted to delay the application of the Pillar 2 global minimum tax (GloBE) rules as allowed by Article 50 of Council Directive (EU) 2022/2523 for EU Member States in which no more than 12 ultimate parent entities of groups within the scope of the Directive are located. As such, the country has partially implemented the Directive through the law, which includes the introduction of relevant definitions, provisions regarding the scope of the rules, and reporting requirements to ensure the correct operation of the rules in the EU. This includes that an ultimate parent entity of an MNE group located in Latvia is required to select a designated filing entity in another EU Member State to file a top-up tax return. If the MNE group has no constituent entity in another Member State, a designated filing entity must be selected in a third-country jurisdiction that has, for the reporting fiscal year, a qualifying competent authority agreement in effect with Lativa for the exchange of information.

The law does not include the main income inclusion rule (IIR) and undertaxed payment/profit rule (UTPR). These will be introduced at a later date and must be applied no later than fiscal years beginning on or after 31 December 2029.

Canada:

Canada’s Department of Finance has announced that the Fall Economic Statement Implementation Act, 2023 (Bill C-59) and the Budget Implementation Act, 2024, No. 1 (Bill C-69) received royal assent (were enacted) on 20 June 2024. One of the key measures of the Fall Economic Statement Implementation Act, 2023 is for the implementation of a 3% digital services tax (DST), the Digital Services Tax Act, which will not enter into force until the day that is fixed by order of the Governor in Council, but not earlier than 1 January 2024. The measure has been structured this way so that the government has flexibility in implementing the DST based on whether progress is made under the OECD’s two-pillar solution, particularly Pillar 1. The Fall Economic Statement Implementation Act, 2023 also includes several other important measures, including an earnings-stripping rule consistent with the BEPS Action 4 recommendations to limit the deduction of net interest expense to no more than a fixed ratio of tax EBITDA, including an initial ratio of 40% for taxation years beginning on or after 1 October 2023 and a final ratio of 30% for taxation years beginning on or after 1 January 2024. Measures are also included to implement hybrid mismatch rules consistent with the BEPS Action 2 recommendations to address deduction/non-inclusion mismatches. One of the key measures of the Budget Implementation Act, 2024, No. 1 is for the implementation of the 15% Pillar 2 global minimum tax, the Global Minimum Tax Act. This applies for fiscal years of qualifying MNE groups that begin on or after 31 December 2023.

The income tax measures are summarized in the respective acts as follows. See the full text of the acts for summaries of additional measures.

Fall Economic Statement Implementation Act, 2023 (Bill C-59)

SUMMARY

Part 1 implements certain measures in respect of the Income Tax Act and the Income Tax Regulations by

(a) limiting the deductibility of net interest and financing expenses by certain corporations and trusts, consistent with certain Organisation for Economic Co-operation and Development and the Group of Twenty Base Erosion and Profit Shifting project recommendations;

(b) implementing hybrid mismatch rules consistent with the Organisation for Economic Co-operation and Development and the Group of Twenty Base Erosion and Profit Shifting project recommendations regarding cross-border tax avoidance structures that exploit differences in the income tax laws of two or more countries to produce “deduction/non-inclusion mismatches”;

(c) allowing expenditures incurred in the exploration and development of all lithium to qualify as Canadian exploration expenses and Canadian development expenses;

(d) ensuring that only genuine intergenerational business transfers are excluded from the anti-surplus stripping rule in section 84.1 of the Income Tax Act;

(e) denying the dividend received deduction for dividends received by Canadian financial institutions on certain shares that are held as mark-to-market property;

(f) increasing the rate of the rural supplement for Climate Action Incentive payments (CAIP) from 10% to 20% for the 2023 and subsequent taxation years as well as referencing the 2016 census data for the purposes of the CAIP rural supplement eligibility for the 2023 and 2024 taxation years;

(g) providing a refundable investment tax credit to qualifying businesses for eligible carbon capture, utilization and storage equipment;

(h) providing a refundable investment tax credit to qualifying businesses for eligible clean technology equipment;

(i) introducing, under certain circumstances, labour requirements in relation to the new refundable investment tax credits for eligible carbon capture, utilization and storage equipment as well as eligible clean technology equipment;

(j) removing the requirement that credit unions derive no more than 10% of their revenue from sources other than certain specified sources;

(k) permitting a qualifying family member to acquire rights as successor of a holder of a Registered Disability Savings Plan following the death of that plan’s last remaining holder who was also a qualifying family member;

(l) implementing consequential changes of a technical nature to facilitate the operation of the existing rules for First Home Savings Accounts;

(m) introducing a tax of 2% on the net value of equity repurchases by certain Canadian corporations, trusts and partnerships whose equity is listed on a designated stock exchange;

(n) exempting certain fees from the refundable tax applicable to contributions under retirement compensation arrangements;

(o) introducing a technical amendment to the provision that authorizes the sharing of taxpayer information for the purposes of the Canadian Dental Care Plan;

(p) implementing a number of amendments to the general anti-avoidance rule (GAAR) as well as introducing a new penalty applicable to transactions subject to the GAAR and extending the normal reassessment period for the GAAR by three years in certain circumstances;

(q) facilitating the creation of employee ownership trusts;

(r) introducing specific anti-avoidance rules in relation to corporations referred to as substantive CCPCs; and

(s) extending the phase-out by three years, and expanding the eligible activities, in relation to the reduced tax rates for certain zero-emission technology manufacturers.

It also makes related and consequential amendments to the Excise Tax Act and the Excise Act, 2001.

Part 2 enacts the Digital Services Tax Act and its regulations. That Act provides for the implementation of an annual tax of 3% on certain types of digital services revenue earned by businesses that meet certain revenue thresholds. It sets out rules for the purposes of establishing liability for the tax and also sets out applicable reporting and filing requirements. To promote compliance with its provisions, that Act includes modern administration and enforcement provisions generally aligned with those found in other taxation statutes. Finally, this Part also makes related and consequential amendments to other texts to ensure proper implementation of the tax and cohesive and efficient administration by the Canada Revenue Agency.

Budget Implementation Act, 2024, No. 1 (Bill C-69)

SUMMARY

Part 1 implements certain measures in respect of the Income Tax Act and the Income Tax Regulations by

(a) denying income tax deductions for expenses incurred with respect to non-compliant short-term rentals;

(b) exempting from taxation the international shipping income of certain Canadian resident companies;

(c) exempting from taxation any income of the trusts established under the First Nations Child and Family Services, Jordan’s Principle, and Trout Class Settlement Agreement;

(d) doubling the volunteer firefighters and search and rescue volunteers’ tax credits;

(e) extending the eligibility for the Canada child benefit in respect of a child for six months after the child’s death;

(f) increasing the cap on labour expenditures per eligible newsroom employee from $55,000 to $85,000 and increasing, for four years, the Canadian journalism labour tax credit rate from 25% to 35%;

(g) extending eligibility for the mineral exploration tax credit by one year;

(h) providing a refundable tax credit to small and medium-sized businesses in designated provinces by returning a portion of fuel charge proceeds from the province;

(i) providing a refundable investment tax credit to qualifying businesses for investments in certain clean hydrogen projects;

(j) providing a refundable investment tax credit to qualifying businesses for certain investments in clean technology manufacturing property;

(k) amending the definition “government assistance” to exclude bona fide concessional loans with reasonable repayment terms from public authorities;

(l) implementing a number of amendments to the alternative minimum tax;

(m) increasing the home buyers’ plan withdrawal limit from $35,000 to $60,000 and deferring the repayment period by three additional years;

(n) excluding the failure to report under the mandatory disclosure rules from the application of the section 238 penalty;

(o) introducing a $10-million capital gains exemption on the sale of a business to an employee ownership trust; and

(p) implementing several technical amendments to correct inconsistencies and to better align the law with its intended policy objectives.

Part 2 enacts the Global Minimum Tax Act, a regime based on the rules of the Organisation for Economic Co-operation and Development (OECD). The global minimum tax regime will ensure that large multinational corporations are subject to a minimum effective tax rate of 15% on their profits wherever they do business. It sets out rules for the purposes of establishing liability for the tax and sets out applicable reporting and filing requirements. To promote compliance with its provisions, that Act includes modern administration and enforcement provisions generally aligned with those found in other taxation statutes. Finally, this Part also makes related and consequential amendments to other texts to ensure proper implementation of the tax and cohesive and efficient administration by the Canada Revenue Agency.

Barbados:

According to updates from the Barbados parliament, the Income Tax (Amendment) and Validation Act 2024 and the Corporation Top-up Tax (Amendment) Act 2024 were both approved by the Senate on 15 May 2024, following their approval by the House of Representatives on 7 May 2024. Both Acts were published in the Official Gazette on 24 May 2024.

As previously reported, the Income Tax (Amendment) and Validation Act 2024 amends the Income Tax Act, Cap. 73 to make provision for the reform of corporation tax in Barbados and other related matters. This includes the following, which generally apply from 1 January 2024 / income year 2024, unless otherwise specified:

New rules for the calculation of assessable income from qualifying intellectual property, which involves multiplying overall income from intellectual property by the nexus ratio (qualifying expenditure plus uplift expenditure / overall expenditure), with assessable income so calculated eligible for a 4.5% tax rate, subject to an election made by the taxpayer;

New rules limiting the carry forward of losses to five years with effect from income year 2025, along with a separate five-year limit for losses in respect of qualifying intellectual property with effect from income year 2024;

New rules for group loss relief, allowing the surrender of losses from one group member to another where there is at least 75% direct ownership or at least 75% common ownership by a third company, which is only available to a company that is subject to the new 9% corporation tax rate and applies from income year 2024 if trading losses brought forward exceed BBD 100 million, otherwise, from income year 2025;

A new corporation tax rate of 9% from 1 January 2024, except for:

• registered small businesses with revenue up to BBD 2 million, which will be subject to tax at a rate of 5.5%; and
• shipping companies, which will continue to be subject to tax at the following rates:
• 5.5% on all taxable income up to BBD 1,000,000;
• 3.0% on all taxable income exceeding BBD 1,000,000 but not exceeding BBD 20,000,000;
• 2.5% on all taxable income exceeding BBD 20,000,000 but not exceeding BBD 30,000,000; and
• 1.0% on all taxable income exceeding BBD 30,000,000;

An additional provision that where a company is part of an in-scope MNE group (revenue of at least EUR 750 million), the following corporation tax rates will apply instead of the 9% rate if the ultimate parent entity or intermediate parent entity of the company is located in a jurisdiction that has not implemented top-up tax legislation that provides for in-scope MNE groups to pay at least a 15% effective tax rate in each jurisdiction where such groups operate:

• 5.5% on all taxable income up to BBD 1,000,000;
• 3.0% on all taxable income exceeding BBD 1,000,000 but not exceeding BBD 20,000,000;
• 2.5% on all taxable income exceeding BBD 20,000,000 but not exceeding BBD 30,000,000; and
• 1.0% on all taxable income exceeding BBD 30,000,000;

New corporate tax prepayment requirements for companies that are part of an in-scope MNE Group, the ultimate parent entity or intermediate parent entity of which is located in a jurisdiction that has implemented top-up tax legislation, with prepayments due by the 15th of each calendar month equal to 1/12th of the tax payable on the taxable income for the income year before the preceding income year according to the application corporate tax rate for the company;

New credits that may be refundable for qualifying companies, including:

a jobs credit for companies carrying on business principally in the financial technology sector or in wholesale distribution and trading without physical inventory or storage in Barbados:

• for up to 50 employees, a credit equal to 25% of eligible payroll expenditure;
• 51 to 100 employees, a credit equal to 50% of eligible payroll expenditure;
• 101 to 150 employees, a credit equal to 75% of eligible payroll expenditure;
• more than 151 employees, a credit equal to 100% of eligible payroll expenditure.

an R&D credit equal to 50% of qualifying expenses incurred for qualifying R&D activities, including systematic, investigative, or experimental activities that:

• are carried on wholly or mainly in Barbados;
• involve innovation and technical risk; and
• are carried on for the purpose of: acquiring new knowledge with a view to that knowledge having a specific commercial application; developing enhancing, protecting, maintaining, and exploiting intellectual property assets; creating new or improved materials, products, devices, processes, or services.

The Corporation Top-up Tax (Amendment) Act 2024 makes provision for the establishment of an effective tax rate of 15% for qualifying entities through the imposition of a top-up tax for fiscal years beginning on or after 1 January 2024. The top-up tax is imposed where the effective tax rate of a DMTT Group is below 15%, in which case the qualifying entities in the DMTT Group are required to pay the top-up tax in accordance with the provisions of the Act. A “DMTT group” means all of the qualifying entities of an MNE group. For this purpose, an entity is a qualifying entity if:

• it is located in Barbados;
• it is a constituent entity of an MNE group;
• that MNE group has an annual revenue of EUR 750 million or more in the consolidated financial statements of the ultimate parent entity in at least 2 of the 4 fiscal years immediately preceding the tested fiscal year; and
• the entity is not an excluded entity.

All the qualifying entities in a DMTT Group are jointly and severally liable for the top-up tax payable and the entire tax liability may be assessed against each qualifying entity of the DMTT Group. For this purpose, the Act sets out rules for the computation of qualifying income or loss, computation of adjusted covered taxes, computation of the effective tax rate and top-up tax, and other related matters.

Spain:

On 14 June 2024, the Spanish Congress of Deputies (lower house of parliament) published the draft bill for the implementation of the Pillar 2 global minimum tax in accordance with Council Directive (EU) 2022/2523 of 14 December 2022. As previously reported, the draft bill 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. The draft bill also provides for the introduction of a qualified domestic minimum top-up tax (QDMTT).

Subject to approval and publication in the Official Gazette, the IIR and QDMTT will apply to tax years commencing on or after 31 December 2023 and the UTPR will generally apply to tax years commencing on or after 31 December 2024.However, the UTPR will apply to tax years beginning on or after 31 December 2023 in respect of constituent entities of groups whose ultimate parent companies are located in EU Member States that have exercised the option for a deferred application of the IIR and UTPR as allowed by Article 50 of the Directive.

Norway:

The Norwegian Ministry of Finance has launched a public consultation on proposed amendments to the Supplementary Tax Act. As previously reported, the Act introduced an income inclusion rule (IIR) and a domestic minimum top-up tax in line with the Pillar 2 GloBE rules that apply for financial years beginning after 31 December 2023 (the 2024 income year). The proposed amendments include the introduction of an undertaxed payment/profit rule (UTPR) that, subject to approval, will apply from the 2025 income year.

OECD:

The OECD has announced the release of additional guidance relating to the report on Amount B of Pillar One and applying the Pillar Two global minimum tax.

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International tax reform: OECD/G20 Inclusive Framework on BEPS taking further steps on the implementation of the Two-Pillar Solution

The OECD/G20 Inclusive Framework on BEPS (Inclusive Framework) released supplementary elements relating to the report on Amount B of Pillar One and guidance to ensure consistent implementation and application of the global minimum tax under Pillar Two.

Amount B of Pillar One

A report on Amount B, which provides a simplified and streamlined approach to the application of the arm’s length principle to baseline marketing and distribution activities, with a particular focus on the needs of low-capacity countries, was published on 19 February 2024 pending completion of design aspects, which have now been completed by the Inclusive Framework, allowing jurisdictions to begin with implementation.

The additional guidance published includes:

• The definitions of qualifying jurisdictions within the meaning of section 5.2 and 5.3 of the Amount B guidance. These definitions will facilitate adjustments to the return calculated under the simplified and streamlined approach for tested parties located in those qualifying jurisdictions. The respective definitions are now incorporated into the Amount B guidance in the annex to Chapter IV of the OECD Transfer Pricing Guidelines.
• The definition of covered jurisdictions within scope of the political commitment on Amount B. That political commitment recognises that subject to their domestic legislation and administrative practices, members of the Inclusive Framework commit to respect the outcome determined under the simplified and streamlined approach to in-scope transactions where such an approach is applied by a covered jurisdiction and to take all reasonable steps to relieve potential double taxation that may arise from the application of the simplified and streamlined approach by a covered jurisdiction where there is a bilateral tax treaty in effect between the relevant jurisdictions. The approach developed to produce the list of covered jurisdictions facilitates tax certainty for jurisdictions most interested in implementing Amount B from 1 January 2025. Note that an expression of interest in applying Amount B does not necessarily mean that a jurisdiction will proceed to implement it.

Further work on the Pillar One package, including the Amount B framework, is ongoing as indicated in the Statement by the Co-Chairs of the Inclusive Framework on 30 May 2024.

Pillar Two

The Inclusive Framework also releases further guidance clarifying and simplifying the application of the global minimum tax and an overview of the streamlined process for recognising qualified status for the legislation of jurisdictions implementing the Global Anti-Base Erosion (GloBE) Rules.

• Administrative Guidance. The Inclusive Framework has released agreed Administrative Guidance on a number of key topics where consistency and simplifications were sought by Inclusive Framework members and stakeholders. This package of administrative guidance sets out simplified procedures that will allow MNE Groups to aggregate various categories of deferred tax liabilities for determining whether they have reversed within five year and therefore do not need to be recaptured. The administrative guidance also clarifies the methodology used to determine deferred tax assets and liabilities for GloBE purposes and further guidance on the allocation of cross-border current and deferred taxes and the profits and taxes on certain flow-through tax structures. Finally, the guidance provides specific guidance on the treatment of securitisation vehicles under a jurisdiction’s domestic minimum top-up tax that will prevent these vehicles giving rise to volatile outcomes under the GloBE Rules. Together, this new package of guidance provides additional certainty and simplifications for stakeholders and will be incorporated in the Commentary to the GloBE Model Rules.
• CbCR Safe Harbour guidance. In December 2022, the Inclusive Framework agreed a significant simplification to the GloBE Rules with the Transitional CbCR Safe Harbour which is based on financial information used for purposes of Country-by-Country (CbC) Reporting. In December 2023, the Inclusive Framework had released further guidance related to the use of the Transitional CbCR Safe Harbour under the GloBE Rules which provided that intragroup payments need to be treated consistently in the payer and recipient jurisdiction. The Inclusive Framework released additional interpretative CbCR guidance on 27 May which also ensures the consistent treatment of those intragroup payments and avoids the need for further adjustments under the global minimum tax where a consistent treatment is applied in the first place.
• Qualified status. Under the “common approach” to the global minimum tax agreed by the Inclusive Framework in October 2021, Inclusive Framework members that adopt the GloBE Rules have agreed to implement and apply them in a consistent and co-ordinated way so as to minimise compliance and administration costs and the risk of double or over-taxation. In particular, the GloBE Rules incorporate an agreed rule order, which prevent a jurisdiction from levying top-up tax in respect of an MNE’s low tax profits where those profits have already been subject to top-up tax under “qualified” rules in another jurisdiction. In light of the rapid adoption of the global minimum tax, the Inclusive Framework has agreed a streamlined process for recognising which jurisdictions have qualified rules. The Inclusive Framework Secretariat has now published on the OECD website a Question & Answer document summarising the main features of this Transitional Qualification Mechanism. This mechanism will provide jurisdictions with the certainty that their rules will be recognised as qualified by other implementing jurisdictions for a transitional period while a full legislative review is being undertaken and will provide MNEs with certainty as to which jurisdictions rules it must comply with in line with the agreed rule-order.