The G7 finance ministers published on 5 June 2021 a Communiqué announcing that they reached a high-level political agreement on a global tax reform. In particular, they agreed on the reallocation of a share of the profits of certain multinational enterprises to market jurisdictions (Pillar 1) and a global minimum tax of at least 15% on a country by country basis (Pillar 2).
Key highlights of the G7 agreement on Pillar 1 and Pillar 2
- The G7 have committed to reach an agreement on the reallocation of taxing rights under Pillar 1, reallocating at least 20% of profits exceeding a 10% margin of the largest and most profitable multinational enterprises.
- As part of the deal, Digital Services Taxes and other relevant similar measures will have to be abolished.
- The G7 have committed to a global minimum tax of at least 15% on a country by country basis (Pillar 2).
Although one may consider this announcement as a “historic change” of the current tax system, this is only a first step towards a broader international agreement. An important next step is the G20 meeting scheduled on 9-10 July during which the G7 hopes to reach agreement amongst the G20 finance ministers. Although the political imperative is clear, i.e. to bring stability in the system, further work will be required on the technical details and practical implementation which will be anything but easy. Within the European Union, the European Commission and the EU Member states will have to work on European directives and domestic implementation legislation to implement Pillar 1 and 2 once international consensus is reached.
What can you do?
It is recommended to think about how this new set of rules may impact your business and quantify the cash impact. We would be glad to help. PwC has developed the Market Taxation Analyser tool (MARTA). MARTA cuts through the technical complexities and focuses on the potential effects of Pillar 1 and 2 if they would enter into effect. It allows for modelling different scenarios and to prepare for the future.
Watch the video to find out more (https://www.pwc.be/markettaxationanalyser) or reach out to Isabel Verlinden, Jonas Van de Gucht, Evi Geerts, Pieter Deré, Jean-Philippe Van West, Stefaan De Baets, Gilles Franssens or Jens Kiekens for further insights.
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