Global Tax Reform

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Global tax reform, on which the Organization for Economic Cooperation and Development has been working for years, is planned for future implementation. On December 20, 2021, Model Global Minimum Tax Rules (Pillar 2 – GloBE) were published.

The 137 countries participating in the reform have agreed on the following: if the effective income tax rate in any country in which the international group of companies operates is less than the minimum tax (15%), then an additional tax will arise to compensate for this difference.

The amendments are more likely to take place in 2022 and, most likely, in 2023 the amendments will come into force.

The new rules will apply to MNEs whose consolidated annual revenues are greater than or equal to €750 million in at least two of the four years prior to the audited period (countries will be able to set a lower revenue threshold, according to the OECD). MGC will be understood as a group of companies that consists of at least one company/permanent establishment (treated as a separate entity in accordance with the rules) located in different jurisdictions with the ultimate parent company.

At the same time, as a rule, the group will include companies that are recognized as interdependent on the basis of ownership or control and are consolidated for financial reporting purposes.

The new rules will NOT apply to the following companies: Government organizations (participant – state) that perform government functions or manage public investments, and also do not carry out trade/commercial activities; international organizations; non-profit organizations; pension funds; investment funds and real estate funds, which are the ultimate parent company; subsidiaries controlled by the above persons, whose activities consist solely in the possession of assets/investment of funds in the interests of these persons.

Conclusions: The implementation of the new rules will certainly affect not only the amount of tax paid by large international groups, but also the workflows within the tax function. It is expected that amendments to the Tax Code of the Russian Federation will be introduced in 2022. The rules should come into force from 2023, while taking into account the announced deadlines, it will be necessary to report for 2023 before July 1, 2025. Thus, taxpayers have some time to fully prepare for innovations.