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BIAC raises pillar two concerns

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The Business at OECD group (BIAC) has written to the OECD working party 11 on aggressive tax avoidance, setting out a number of ‘policy issues’ which it believes ‘may mean that the Model Rules cannot achieve their intended purpose’.

BIAC raises the following key concerns:

  •  Complexity: noting that the combination of rules, together with the difficulties of legislating and implementing new laws, could lead to ‘years of significantly increased uncertainty and instability’. BIAC urges a ‘relentless focus in the coming months, wherever possible, on reducing complexity in the Model Rules’.
  • Pillar two tax owing even when no income in a jurisdiction in a year: pointing out a potential policy inconsistency where article 4.1.5 of the model rules applies top-up tax where there is no net globe income for a jurisdiction (i.e. no financial accounting net income for a constituent entity for the relevant financial year, as adjusted). As BIAC notes: ‘We believe this tax charge, when there is no income, is fundamentally inconsistent with the overall policy goals articulated in the preamble [to the model rules]’.
  •  Deferred tax attributes limited to minimum tax rate, even if jurisdiction has higher tax rate: noting that the underlying intention of the agreement on pillar two was to smooth out the effective tax rate of a jurisdiction over a period of time, to ‘neutralise’ the effect of any fluctuations. Articles 4.1.5 and 4.4.1 depart from this principle, says BIAC: ‘Article 4.4.1 … recasts deferred tax at the Minimum Rate, regardless of whether the actual tax rate in that jurisdiction is substantially higher than the Minimum Rate. The requirement that deferred tax balances be recast at the minimum rate we believe undermines the ability of the rules to achieve the policy objective of smoothing the ETR.’
Issue: 1559
Categories: News