August 29, 2023
Canada has recently unveiled draft legislation on August 4th, outlining its plans to implement the OECD/G-20 Inclusive Framework’s Pillar Two global minimum tax scheme. This proposed regime is designed to be applicable to multinational groups (MNE groups) that boast consolidated revenue reaching at least €750 million.
Under this framework, MNE groups would be obligated to compute the effective tax rate (ETR) within each country where they maintain a subsidiary or a permanent establishment. Should the calculated ETR for a specific country fall below the 15% threshold, a supplementary tax would be enforced to elevate the ETR to the prescribed 15% level. It’s worth noting that this supplementary tax could potentially be mitigated by a Substance-Based Income Exclusion (SBIE), which hinges on the computation of payroll expenses and the net book value of tangible assets situated within that jurisdiction. Notably, the ETR computation is primarily based on information derived from financial statements, encompassing various adjustments.
The OECD has taken the initiative to issue a set of model regulations designed to facilitate the implementation of Pillar Two, accompanied by commentary and administrative guidelines pertaining to these regulations (referred to as the OECD commentary). As part of the process, each participating nation is required to enact domestic tax legislation in alignment with these model rules, thus enabling the effective implementation of Pillar Two within their respective jurisdictions.
Canada has taken a significant step by introducing its version of the Pillar Two implementing legislation, which has been designated as the Global Minimum Tax Act (GMTA). This proposed act largely follows the structure of the model rules and adheres to the principles outlined in the OECD commentary. To ensure uniformity and coherence, the GMTA incorporates a clause stipulating that the legislation should be interpreted consistently with the model rules, the OECD commentary, and any future guidance that the OECD may issue. However, it is important to highlight that while the GMTA aligns with the overarching framework of the model rules, there are notable differences in its drafting and overall structure.
Source: pwc Insights – by
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