OECD’s subject to tax rule under Pillar Two moves forward

Nine jurisdictions signed a new multilateral treaty that will allow early adopters to swiftly implement the new Pillar Two Subject to Tax Rule.

The Pillar Two Subject to Tax Rule was agreed on a consensus basis by members of the Inclusive Framework on BEPS, who also adopted an elective Multilateral Convention to Facilitate the Implementation of the Pillar Two Subject to Tax Rule to enable the swift and efficient implementation of the rule.

The Subject to Tax Rule (STTR) ensures a minimum level of taxation on relevant cross-border payments and is designed to prevent circumstances where income is either taxed at very low rates or not taxed at all due to differences in tax regimes between countries.

Members of the Inclusive Framework that apply nominal corporate income tax rates below nine percent to income covered by the STTR have committed to incorporate the STTR into bilateral tax agreements with members of the Inclusive Framework that are developing countries when requested to do so.
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The STTR allows jurisdictions to “tax back” where defined categories of income are subject to nominal tax rates below the STTR minimum rate of nine percent, and domestic taxing rights over that income have been ceded under a treaty.