Legislation for Implementation of Pillar Two Global Minimum Tax Rules Enacted

On 20 June 2024, Canada enacted new legislation imposing a 15% global minimum tax on profits, significantly impacting Canadian multinational corporations and those operating within the country. The new Global Minimum Tax Act (GMTA) legislates an income inclusion rule (IIR) and a qualified domestic minimum top-up tax (QDMTT).

Key Points:

• Retroactive Implementation: The GMTA applies retroactively to fiscal years beginning on or after December 31, 2023.
• Scope: The new minimum tax affects multinational enterprises with consolidated annual revenues exceeding EUR 750 million.
• Financial Reporting Considerations: The enactment of the GMTA may trigger financial reporting considerations for calendar year-end taxpayers.
• OECD Alignment: The GMTA is designed to align with the OECD’s Pillar Two rules.
• Key Components: The GMTA includes legislation on definitions, tax liability, domestic minimum top-up tax, anti-avoidance rules, administration, and regulations.
• Explanatory Notes and Table of Concordance: The Department of Finance has issued explanatory notes and an updated table of concordance to provide guidance on the GMTA.
• OECD Pillar Two Rules: Pillar Two aims to address base erosion and profit shifting by requiring large corporations to pay a minimum effective tax rate of 15% on income earned in each jurisdiction.
• Income Inclusion Rule (IIR): The IIR imposes a top-up tax on profits earned in jurisdictions with effective tax rates below the minimum threshold.
• Undertaxed Profits Rule (UTPR): The UTPR is expected to come into effect on December 31, 2024.
• Qualified Domestic Minimum Top-up Tax (QDMTT): The QDMTT is designed to prevent other jurisdictions from imposing a top-up tax on Canadian-sourced income.
• Key Topics: The blog post discusses various key topics such as private companies reporting under ASPE, tax credits, joint ventures, passive income, intragroup financing arrangements, allocation of profits and taxes, general anti-avoidance rule, offenses and punishment, and the Canadian DMTT.
• Canadian Compliance Considerations: The blog outlines new filing obligations, including the GloBE information return, GIR notification, Part II tax return, Part IV tax return, and the appointment of a designated notification entity.
• Penalties: The blog discusses penalties for failure to file returns or comply with other requirements.
• Key Areas for Organizations to Consider: The blog highlights the importance of local integration, people, data, and processes in addressing the implications of the GMTA.

Sources:

1. Canada, Department of Finance. (2024). Legislative Proposals Relating to the Global Minimum Tax Act. Ottawa: Department of Finance.
2. OECD. (2021). Statement on the Components of Global Tax Reform.
3. OECD. (2023). OECD Model Rules for the Pillar Two Global Minimum Tax.
4. Canada Revenue Agency. Global Minimum Tax (GMT) Information. https://fin.canada.ca/drleg-apl/2023/ita-lir-0823-l-4-eng.pdf