The international community is trying to set up a “tax revolution”, shifting taxation to the countries where the revenues are made. The OECD and the European Union acknowledge that the digitalization of the economy has broken the link between business and the territory and that international taxation must adapt to the evidence that the digital economy is the whole economy.
The reforming architecture is based on the so-called “Pillar 1 and 2” and summarized in the agreement reached on 8 October 2021 by 137 countries (out of the 141 adherents to the OECD and G20 inclusive framework on base erosion and profit shifting), of 94% of world GDP, which has already produced a document in public consultation on the OECD website until February 18 on Pillar 1, of the guidelines on Pillar 2 by the same organization (last December 20) and a proposal for directive of the European commission always on Pillar 2 (on December 22).
The timing is ambitious, because it is proposed to implement the reform by 2023, the year by which local digital taxes will have to be abandoned, which are not suitable for guaranteeing that multinationals pay, in a “congruous and pro quota” way, taxes in the countries where they make revenues.
Pillar 1, with a unified approach based on Amounts A and B intended for groups with more than 20 billion in turnover, aims to ensure that a state can tax non-resident companies regardless of whether they have a physical connection with that one. In fact, Amount A refers to the significant digital presence. The companies concerned, with a profitability exceeding 10% of turnover, will have to reallocate 25% of the excess profit to the countries where revenues are made.
Ifrs principles, transfer pricing rules and compliance will guide the process. Amount B is aimed at identifying a fixed remuneration for distribution and marketing activities. The extractive industries and the financial world are excluded. Double taxation will need to be managed with an ad hoc convention, “outside” the treaties, to be grafted onto the complex balance of taxation powers of individual states.
Pillar 2, to stem arbitrages, provides for the application of an effective minimum tax of 15% for companies with more than 750 million in turnover. These are the Global anti-base erosion rules (Globe) with two interconnected mechanisms, (i) an Income inclusion rule (Iir), which imposes a top-up tax on the parent company in relation to poorly taxed profits and, (ii) a support of the Iir, if the top-up tax does not apply, an Undertaxed payment rule (Utpr), which limits deductions and provides for adjustments. In addition, a Subject to tax rule (Sttr) agreement is envisaged for taxation at source on flows taxed at a rate of less than 9 percent.
On December 20, the OECD issued guidelines on Pillar 2, which consist of 10 chapters, followed on December 22 by a proposal for a directive that the Commission intends to finalize in mid-2022 with the transposition regulations of the Member States to be adopted at the beginning of 2023, in order that they adapt in a coordinated and diligent way to the new principles. The proposed directive clarifies that the Cfc (Controlled foreign companies) rules, which allow the taxation in a country of income allocated in low-tax jurisdictions, apply as a priority with respect to Pillar 2. The theme of the interaction between Cfc and Globe follows that of the compatibility of the latter with the US Gilti (the Global intangible low-taxed income aimed at intercepting income from intangible assets that is poorly taxed and different both in terms of rate – 10.5% against 15% – and as a basis for calculation). The accession of the United States to this project is the primary reason for its success and therefore it will need to be monitored these balances.