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How pillar two attacks multinationals’ high tax subsidiaries

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Multinationals should pay close attention to various ‘traps’ on the operation of the pillar two model rules which might generate a tax charge when none was expected. The operation of deferred tax provisions can lead to the absurdity of a negative marginal tax rate whereby the lower a multinational’s profits the higher the top-up tax due (and vice versa). Another potential trap arises from the application of accounting principles on the transfer of assets among multinationals’ constituent entities especially as a consequence of stock acquisitions. A further trap is caused by domestic tax incentives such as the UK’s patent box regime which can cause the effective tax rate to fall below 15% and as a consequence risks undermining such incentives unless the territory in question modifies them to become qualified refundable tax credits. The OECD needs to reach agreement on how to resolve these practical...

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