Global Finance

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New Global
Minimum Tax
Initiative

Kiana, Kianoosh, Simran, Fiji and Pasha

What is global minimum Tax Reform?
 Multinational enterprises (MNEs) to pay a minimum 15% tax rate in every country of operation from 2023, 
 To prevent situations where these MNEs take advantage of differing tax regimes between jurisdictions and
effectively avoid paying tax.
 The global minimum tax was agreed in October 2021 between 136 (now 137) of the 141 countries who are
members of the Organization for Economic Co-operation and Development (OECD)/G20 

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Focused on:
 Digital economy
 Scale without mass (growth of firms without physical presence)
 Reliance on intangible assets or centrality of data. 
 The previous and new technologies have facilitated tax
avoidance through profit shifting to low-tax jurisdictions

 The global minimum tax

 Reduce the use of tax havens by MNEs to shift profits out of

their main operating companies
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How will the tax operate?

 Pillar one (Reallocation of profits) 
 Applicable to the largest and most profitable MNEs with worldwide revenue greater than €20 billion
and profitability above 10%. This amount could also be in 7 years reduced to €10 billion if the
implementation succeeds. 
 This pillar redistributes excess profits of MNEs to jurisdictions, where consumers or users are
located, regardless of whether firms are in those jurisdictions physically present. 

 Pillar two (global minimum corporate tax of 15%)

 A new global minimum corporate tax of 15% for corporations in scope. It will apply to multinational
groups with revenue exceeding EUR 750 million.
 It addresses the relationship between parent MNCs and their subsidiaries.
 If the MNC's subsidiary has low-taxed income, then the MNC must pay a top-up tax to increase the
tax rate related to the income to 15%. 
 The global minimum tax consists of three principal rules: inclusion rule (IIR), the undertaxed
payments rule (UTPR) and the subject to tax rule (STTR).
5  Income inclusion rule (IIR)
 Foreign income
z of a company should be included in the taxable income of the parent company. The agreement
places the minimum effective tax rate at 15 percent, otherwise additional taxes would be owed in a company’s
home jurisdiction.
 Undertaxed payments rule (UTPR)
 Which would allow a country to increase taxes on a company if another related entity in a different jurisdiction is
being taxed below the 15 percent effective rate. If multiple countries are applying a similar top-up tax, the taxable
profit is divided based on the location of tangible assets and employees.
 Subject to tax rule (STTR)
 The STTR is a treaty-based rule, which may override treaty benefits in existing treaties in respect of certain
payments where those payments are not subject to a minimum level of tax in the recipient jurisdiction.
The STTR, the IIR, and the UTPR differ at some points:
 First, STTR can be applied regardless of the group size. (i.e., the EUR 750 million thresholds may not apply)
 Second, the STTR only applies to certain categories of related party payments
 Third, the STTR applies on a payment-by-payment basis and not in a general application under the global
minimum tax
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Which (harmful) behavior of MNCs

does the reform target?​ Disturbing
Politicalthe
pressure
plan priorities
Inappropriate
Excessive Technology
profits
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Reforms advantages and

disadvantages:

 From the state point of view:

 From the corporate point of view:

 From the other stakeholders’

point of view:
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Tax reform on MNC’s

General Benefits :
 1- The Comprehensive Tax Reform Program will help the economy grow by 1.3%
by 2022. GDP will be boosted as a result of higher household consumption due to
lower income tax and the cash transfers. Increased economic activity will be
buoyed by increased household consumption and higher investments.

2- Reduces marginal tax rates; Ensures that there is the same treatment for all,
whether it's a property, industry, or investment. Tax reform ensures that the rate of
tax evasion and avoidance gets lowered. It ensures that the tax structure gets
fully organized.
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Discussion: Will the reform

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benefit economic, social and
ecological development in
the participating countries?