Pillar Two: The new normal for effective tax rates

After much anticipation, the OECD released the 'Blueprint' for their Pillar Two proposal on 12 October as part of its two pillar package to deal with the increasing digitalisation of the economy.

The premise behind the Pillar Two proposal is simple, if a state does not exercise their taxing rights to an adequate extent, a new network of rules will re-allocate those taxing rights to another state who will.

This would be achieved through:

• a new global minimum tax regime ('GloBE') which aims to ensure a minimum effective tax rate across all jurisdictions; and
• imposing a minimum level of taxation on certain payments between connected persons (the 'Subject to Tax Rule').

A number of areas require further work and political agreement, not least of all what the minimum tax rates would be (the Blueprint suggests somewhere between 10% - 12% for the GloBE proposal and 7.5% for the Subject to Tax Rule).

However, one thing is clear, the Blueprint provides a framework to fundamentally reshape the international tax system in a way that is unlikely leave any group within its scope unaffected.

Read the full summary.