On Oct. 8, 2021, the Organisation for Economic Co-operation and Development (OECD) announced that 136 countries, including Canada, have agreed on the elements of the landmark two-pillar plan on international tax reform. This is a significant development, which updates and finalizes the July political agreement, entered into by the members of the Inclusive Framework. This agreement fundamentally reforms the international tax rules and will ensure that multinationals pay a fair share of tax wherever they operate.
There is no change to the scope of Pillar One and Pillar Two.
Pillar One will re-allocate some taxing rights over multinationals from their home countries to the markets where they have business activities and earn profits, regardless of whether multinationals have a physical presence there. Countries are aiming to sign a multilateral convention during 2022, with effective implementation in 2023. The convention is already under development and will be the vehicle for implementation of the newly agreed taxing right under Pillar One, as well as for the standstill and removal provisions in relation to all existing Digital Service Taxes (DST) and other similar relevant unilateral measures. On the same day of the agreement, the government of Canada announced that it will continue drafting the DST rules, but delay its implementation until Jan. 1, 2024, if the OECD’s international tax agreement is not implemented by Jan. 1, 2024. In that case, the DST would be payable as of 2024 in respect of revenues earned as of Jan. 1, 2022.
Pillar Two aims to implement a global anti-base erosion rule through the introduction of a global minimum corporate tax rate of 15% that countries can use to protect their tax bases. The new minimum tax rate will apply to companies with revenue above €750 million and is estimated to generate around US$150 billion in additional global tax revenues annually. The OECD will develop model rules for bringing Pillar Two into domestic legislation during 2022, to be effective in 2023.