Global tax reform
OECD and the G20 countries have for some time collaborated on finding a method for dealing with the challenges arising from the digitalisation of the economy.
The global tax reform is among other things, meant to ensure the taxation of large international corporate groups with a minimum rate regardless of where their activities are based. A reporting obligation for affected enterprises will most likely come into effect from 2026.
In October 2021, a political agreement was reached on changes in the international framework on taxation of large multinational groups.
The new regulations are intended to resolve the following challenges in the present taxation system:
- rules and regulations that don not regulate the emergence of new digitalised business models
- a framework that enables tax planning
- unsalutary competition through the provision of tax incentives
A summary of the regulations
The global tax reform, also referred to as “Unified Approach”, consists of two main parts, called pillars.
Pillar 1 – Distribution of company profit
Pillar 1 consists of two parts, where Amount A regulates the distribution of taxation rights to company profits between countries. Under Amount A, some of the profits of large multinational enterprises are redistributed to marked jurisdictions. The regulations apply to multinational groups with a global turnover of 20 billion euros and a profitability rate of more than 10 percent.
Amount B will ensure a more streamlined and simplified assessment of arm’s length pricing for baseline distribution and marketing transactions.
Pillar 2 – Minimum taxation
Pillar 2 consists of the GloBE rules and the Subject to Tax Rule (STTR).
GloBE rules regulate the global minimum taxation for large multinational groups. The rules are meant to ensure that affected groups are taxed at an effective rate of minimum 15 percent by calculating a top up tax equivalent to the difference between the effective tax rate and 15 percent.
The calculated top up tax is based on three different sets of rules:
- Qualified Domestic Minimum Top up Tax (QDMTT)
- The Income Inclusion Rule (IIR) means that the calculated top up tax is taxed in the group based on a “top-down” approach, subject to the ownership structure of the low taxed enterprise.
- The Undertaxed Payment Rule (UTPR) is intended to ensure a minimum taxation of 15 percent in cases where the top up tax is not taxed according to the main rule.
The regulations apply to groups with a global turnover of 750 million euros.