A statement has been discussed in the OECD/G20 Inclusive Framework on BEPS, which was agreed to by 131 jurisdictions, including Malta.
Economy digitalisation causes tax challenges and this statement is about a two-pillar solution to address such challenges. The changes would come into effect in 2023.
The framework for reforms agreed by the members will have a large effect on many multinational enterprises (MNEs).
In the first pillar, the revenue will be sourced to the end market jurisdictions where goods or services are used or consumed. There will be the development of source rules for specific categories of transactions. In applying the sourcing rules, an MNE must use a method based on precise facts and circumstances. Double taxation of profit allocated to market jurisdictions will be relieved. MNEs will benefit from dispute prevention and resolution mechanisms. The application of the arm’s length principle to in-country baseline marketing and distribution activities will be simplified and streamlined.
In the second pillar, the GloBE rules will apply to MNEs that meet the 750 million euros threshold. To ensure that the administration of the GloBE rules is as targeted as possible and to avoid compliance and administrative costs that are disproportionate to the policy objectives, the implementation framework will include certain mechanisms. Pillar Two will apply a minimum rate on a jurisdictional basis. Consideration will be given to certain conditions to ensure a level playing field.
The members and OECD will be finalising the rules for the implementation of these Pillars.