BUSINESS

Income Tax. The Organization for Economic Co-operation and Development (OECD) published rules for the implementation in member nations of the 15% global minimum income tax on large companies starting in 2023. The tax will apply to multinational companies with revenues in excess of €750 million. The rules allow countries adopting this tax threshold to charge a “top-up tax” equal to the income received by multinational companies in other jurisdictions where the income tax is lower. Thus, if a company pays 6% income tax in one jurisdiction, it will have to pay the remaining 9% in the country or countries that adopted the 15% threshold. The OECD anticipated that it will put the text out for public consultation of interested parties in February with the aim of presenting the final rules later in the year.

These rules published by the international organization establish the Global Anti-Base Erosion (GloBE) mechanism. This protocol provides a coordinated system of taxation for large multinational groups of companies to pay this minimum level of taxation on their operations in each of the jurisdictions involved. The rules create a “top-up tax” that will apply to profits in any jurisdiction as long as the effective tax rate is below the minimum rate of 15%.

The tax will apply to multinational companies with consolidated income of €750 million in at least two of the last four tax years on record. Governmental entities, international organizations, non-profit organizations, pension funds or investment funds that are ultimate parent entities of an MNE group are excluded entities that are not subject to the tax, but this exclusion does not affect the MNE group owned by such entities if the group as a whole meets the consolidated income threshold.

Next steps

OECD member countries in Latin America, Chile and Colombia, are expected to start with the incorporation of the new tax mechanism into national legislation in 2022. In the coming weeks, the OECD will put these rules out for public consultation for stakeholder feedback. It will also publish an additional paper related to the model rules and address their coexistence with the US Global Intangible Low Taxed Income (GILTI) rules.

Engagement opportunity

In view of the eventual regulatory reform, McDonald’s will have the opportunity to participate in the public consultation that the OECD will open to receive input from all sectors with a view to refining the application of these rules.