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An international tax framework triggering the most significant changes to the international tax rules in the last 100 years: tax reforms to come in 136 countries for the next few years!
  • ADG LEGAL
  • Africa
  • BEPS
  • IF
  • Izzat-Begum B. Rajan
  • Kenya
  • Nigeria
  • OECD
  • Pakistan
  • Sri Lanka
  • TAX LAW
  • Tax rate
  • Tax reform
  • tax reforms for 136 countries

An international tax framework triggering the most significant changes to the international tax rules in the last 100 years: tax reforms to come in 136 countries for the next few years!

An international tax framework triggering the most significant changes to the international tax rules in the last 100 years: tax reforms to come in 136 countries for the next few years!

After several years of highly complex and difficult negotiations, the Inclusive Framework (IF) of the OECD (BEPS) issued its two-pillar solution to address the tax challenges arising from the digitalisation of the economy on 8th October 2021. As you already know, this is an agreement resulting in a two-Pillar set of rules that represents the most significant changes to the international tax rules in the last 100 years.

With Estonia, Hungary and Ireland having joined the agreement, it is now supported by all OECD and G20 countries. Four countries – Kenya, Nigeria, Pakistan and Sri Lanka – have not yet joined the agreement.

Pillar One is about the new Amount A rules. According to the IF implementation plan, the Multilateral Convention (MLC) through which Amount A is to be implemented, will be developed, and opened for signature in 2022, with Amount A coming into effect in 2023. The said detailed implementation plan has been included as an Annex to the IF Statement.

Pillar Two consists of two interlocking domestic rules (together the Global anti-Base Erosion Rules, GloBE rules) and a treaty-based rule (the Subject to Tax Rule, STTR) that allows source jurisdictions to impose limited source taxation on certain related party payments subject to tax below a minimum rate. The STTR will be creditable as a covered tax under the GloBE rules.

Pillar Two is where the minimum tax rate of 15% (for purposes of the Income Inclusion Rule, IIR and the Undertaxed Payment Rule, UTPR) is also stated. However, ATAF and the African Union have previously stated to the IF that in our view the minimum global tax rate needs to be at least 20% if it is to stem artificial profit shifting out of Africa, as most African countries have a statutory corporate income tax rate of between 25% and 35%. Multinationals will only be disincentivised from such profit shifting in Africa if all its profits are taxed at least at 20% no matter in which jurisdiction the profits are reported. ATAF is therefore disappointed that the IF has decided the minimum tax rate will be 15% and will continue to call for a higher minimum tax rate in the future.

According to the Inclusive Framework Statement, Pillar Two should be brought into law in 2022, to be effective in 2023, with the UTPR coming into effect in 2024.

For those ATAF members that have joined the Inclusive Framework agreement there will be a significant amount of implementation work to be undertaken including:

PILLAR ONE: Changes to domestic legislation; negotiation, signature, and ratification of the Amount A Multilateral Convention; development and implementation of Amount B; administration of the new Amount A rules.

PILLAR TWO: implementation of domestic law for the Undertaxed Payments Rules and in some countries the Income Inclusion Rules; signing and ratification of the Multilateral Instrument to implement the STTR; impact of the Pillar Two rules on tax incentive regimes with a possible reform of these incentives; building tax administration capacity to administer and enforce the new rules.

Lots of changes in perspective and subsequent discussions between our clients and tax authorities. ADG Legal’s Tax Practice is ready to assist.

For more information, visit the ATAF website: ATAF Admin (ataftax.org).

To have a discussion about your tax matters, please reach out to our Head of Tax Practice and Senior Counsel, Izzat-Begum B. Rajan.