In response to the call made by the G 20 Leaders, the OECD initiated the BEPS project, which aims to close the major gaps found within international tax rules that allows multinational enterprises (MNEs) to shift profits to low or no-tax jurisdictions.

With 15 comprehensive “Action Plans”, BEPS equips governments with tools to ensure profits are taxed where economic activities occur and in the jurisdiction within which value is being created. It is important to note that group entities falling within the definition of a micro, small or medium sized enterprise per Article 2 of the EU Commission Regulation (EU) No 651/•2014 will be exempt from these rules.

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Pillar 1 addresses the tax challenges posed by the digital economy, focusing on reallocating profits of large MNEs to market jurisdictions where their consumers are located, irrespective of physical presence. This involves determining whether your business falls within the scope of Pillar 1, which generally targets MNEs with global revenues above €20 billion and profitability above 10%. The directive introduces a new nexus rule for allocating a portion of profits, known as Amount A, to market jurisdictions where the MNEs' users or customers are located. This requires an analysis and implementation of new profit allocation methodologies. Additionally, Pillar 1 encourages the removal of unilateral measures like Digital Services Taxes (DSTs) and other similar taxes. A mandatory binding dispute resolution mechanism is also implemented to handle any arising tax disputes effectively.

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Pillar 2 of the OECD’s Inclusive Framework on BEPS (introduces a global minimum tax rate framework aimed at MNEs. Key components of Pillar 2 include the Income Inclusion Rule (IIR), which requires the parent entity of an MNE group to include in its taxable income the low-taxed profits of its subsidiaries, thereby imposing a top-up tax to ensure a minimum effective tax rate. The Undertaxed Payments Rule (UTPR) allocates top-up taxes to jurisdictions where income from specific payments within MNE groups is undertaxed. Additionally, the Qualified Domestic Minimum Top-up Tax (QDMTT) allows jurisdictions to impose a minimum tax on domestic excess profits, safeguarding against erosion of the tax base.

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Pillar 2 also introduces safe harbour provisions, both transitional and permanent, to simplify compliance for MNEs, offering predictability amidst evolving tax regulations. Finally, the Subject to Tax Rule (STTR) ensures that certain payments within MNEs are subject to at least a 9% tax rate in applicable jurisdictions, curbing base erosion through deductible payments. Together, these measures under Pillar 2 seek to create a more equitable global tax environment by establishing minimum taxation standards and preventing aggressive tax planning strategies that exploit disparities in international tax systems.

 

Malta has issued a legal notice officially opting for the delayed implementation of the IIR and the UTPR, allowing for a maximum delay of 6 years under Article 50 of the EU Minimum Tax Directive. Importantly, this legal notice does not introduce a QDMTT as it is expected that, throughout the coming years, the government will monitor global developments closely and adjust policies in line with its competitive fiscal positioning within the tax landscape.

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​Here at CSB Group, our team of tax experts is readily keeping up to date with the expansive nature of international taxation. We are prepared and eagerly awaiting developments within this space to determine how these may affect local markets. Contact us today to stay ahead of the curve and ensure your business is compliant with the latest international tax regulations.