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Could Pillar Two Mean Double Taxation for MNEs?

15th March 2022

Back in October, 140 countries signed on for the OECD’s Pillar Two proposal of a 15% global minimum tax. But as more details are introduced, experts are concerned that Pillar Two is resembling that initial October proposal less and less. In December, the OECD introduced model rules, which incorporated two new elements into the proposal: a Qualified Domestic Minimum Top-up Tax (QDMTT) and a revised version of the Undertaxed Payment Rule (UTPR). Both rules could potentially change the game. The QDMTT allows low-tax countries to apply a top-up tax on low-taxed entities within their borders without having to increase their low-tax rates—even no-tax jurisdictions can impose the top-up tax. For groups with entities in the U.S., the concern is double taxation—low-taxed income would be subject to GILTI for the ultimate parent entity and also to the foreign subsidiary under QDMTT—which was hardly the point of the original plan. The UTPR may be even worse, as it opens the door to a company being taxed in a country where it has no nexus or source income. Of course, Pillar Two isn’t a given—countries would have to adopt it into legislation to make it official—but for a plan that was supposed to bring tax certainty to a complicated landscape, for some, it feels more like the Wild West.