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Origins of the Pillar Two multinational top-up tax

In October 2021, over 135 jurisdictions signed up to a ‘two-pillar’ solution to reform the international taxation rules. The main aim is to ensure that large multinational enterprises (MNEs) pay a fair share of tax, no matter which territory they operate in. The two pillars are as follows:

1. •

   Pillar One ― profits earned by large MNEs are reallocated to the market jurisdiction in which they have the most engagement, irrespective of whether or not the MNEs have a physical presence there

2. •

   Pillar Two ― introduction of the Global Anti-Base Erosion (GloBE) rules, which require qualifying MNEs to pay tax at a minimum effective rate in every jurisdiction in which they operate, regardless of the main rate locally or the availability of local tax reliefs, by charging a top-up tax

The framework for Pillar One is still under consultation at OECD level, however the OECD’s Model Rules and Commentary on Pillar Two were published in December 2021 and March 2022 respectively.