PARIS, France – The international community took another concrete step today towards ensuring fairer and better international tax arrangements, in particular for developing countries, by further strengthening global minimum taxation with the implementation of the new Pillar Two Subject to Tax Rule.

Nine jurisdictions signed a new multilateral treaty that will allow early adopters to swiftly implement the new Pillar Two Subject to Tax Rule.

The Pillar Two Subject to Tax Rule (STTR) was agreed on a consensus basis by members of the OECD/G20 Inclusive Framework on BEPS, who also adopted an elective Multilateral Convention to Facilitate the Implementation of the Pillar Two Subject to Tax Rule (STTR MLI) to enable the swift and efficient implementation of the rule.

The Subject to Tax Rule ensures a minimum level of taxation on relevant cross-border payments and is designed to prevent circumstances where income is either taxed at very low rates or not taxed at all due to differences in tax regimes between countries.

Members of the Inclusive Framework that apply nominal corporate income tax rates below 9% to income covered by the STTR have committed to incorporate the STTR into bilateral tax agreements with members of the Inclusive Framework that are developing countries when requested to do so.

The STTR allows jurisdictions to “tax back” where defined categories of income are subject to nominal tax rates below the STTR minimum rate of 9 percent, and domestic taxing rights over that income have been ceded under a treaty.

The STTR forms part of a package of rules aimed at ensuring global minimum taxation of multinational businesses. The STTR complements and takes priority over other rules agreed in that package and is designed to help developing country Inclusive Framework members to protect their tax base. More than 70 developing country members of the Inclusive Framework are eligible to request inclusion of the STTR in their agreements with other members of the Inclusive Framework in accordance with the commitment on the STTR.

Developing countries are often the source of significant outbound payments that can be subject to low or no taxation. The STTR provides developing countries with a more straightforward tool to help ensure they receive their fair share of tax revenue by taxing any such payments when they are undertaxed in the recipient’s jurisdiction, helping to protect their tax base.

The STTR may be implemented by joining the STTR MLI or by bilateral amendments to tax agreements. The active participation of jurisdictions in today’s event is evidence of the strong commitment among Inclusive Framework members to the policy goals of the STTR. During the signing ceremony, 19 members of the Inclusive Framework joined the ceremony to sign, or to signal their intention to sign, the STTR MLI as soon as internal processes are finalised. The signing ceremony represents an important milestone for developing countries in the implementation of the second pillar of the Two-Pillar Solution to Address the Tax Challenges Arising from the Digitalisation of the Economy.

“Currently, developing countries lose substantial revenues to base erosion and profit shifting by multinational enterprises. They are more vulnerable to these practices than developed jurisdictions. The imminent entry into force of the Multilateral Instrument will make a real tangible difference, by enabling developing countries to request the automatic inclusion of the Subject to Tax Rule in bilateral tax treaties with developed country Inclusive Framework members, ensuring that everyone benefits from the consensus-based solutions being developed to make the global tax system fairer and work better in an increasingly globalised and digitalised world economy,” OECD secretary-general Mathias Cormann said.

“Today’s signing ceremony is a further significant milestone in the implementation of the Two-Pillar Solution to stabilise the global tax landscape, to reduce the incentive for multinationals to profit shift, curb harmful tax competition, remove inappropriate pressure on countries to offer low or no corporate tax arrangements in return for investment and help to generate important additional revenues for governments around the world.”

The text of the STTR MLI, the explanatory statement, background information, database, and positions of each signatory and party are available at https://oe.cd/sttr-mli



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