Imagine waking up to a world where no-tax and low-tax jurisdictions no longer exist. The playing field is leveled. Each country is getting its part of the pie, and all is well in the world.  Dream on!

For many months now, the reform of the international tax rules under the OECD/G20 Inclusive Framework on BEPS have been the talk of the town. In the two-fold approach, Pillar One aims to ensure that taxing rights are closely linked to the company’s local market engagement, and Pillar Two strives to establish a global minimum tax rate. But what does this really mean, and have we seen any changes?

Pillar One focuses on the reallocation of certain profits of a multinational enterprise to the jurisdictions where sales arise, as well as the standardisation of the remuneration of routine marketing and distribution activities. Pillar One, in spite of many changes, remains technically complex; some might say the “rules” could only have been written by civil servants, divorced as they are from real business. Despite the lack of clarity and inchoate nature, it is expected that the rules would be finalised during 2022 and will take effect at the beginning of 2023.  This means that we will very soon see rules being drafted to come into effect next year around something that nobody really understands. This is scary!

Pillar Two’s objective is to impose a 15% minimum tax on the earnings of most multinational groups with revenues in excess of EUR750 million. Pillar Two has been steadily gaining traction, especially in terms of the so-called Inclusive Framework that is aimed at providing long-term consensus-based solutions to the tax challenges from the digitalisation of the economy and providing interested countries the opportunity to work on an equal footing with OECD and G20 members. The uptake and concomitant changes have been quite surprising.

After much public opposition against the global minimum tax rate of 15%, in October 2021 Ireland quietly flip-flopped and announced they would increase their corporate tax rate from 12,5% to 15%, in one of the biggest shifts to the country’s tax system in 20 years, although only for multinationals with an annual turnover exceeding USD870 million. Ireland has of course been a leading tech hub, and the global techies ain’t there for the weather. Ireland is home to Google, Facebook, Yahoo, eBay, Amazon, and recently TikTok. Will these tech companies stay, or will they move, and if so where to?

Cyprus then followed Ireland in December 2021, when it was announced that Cyprus too would increase its corporate tax rate to the minimum prescribed rate of 15% in the hope of strengthening the competitiveness of the Cypriot economy and enchasing Cyprus’s position as a business centre.

The biggest surprise however was in February 2022 when the UAE announced that they would be introducing a corporate tax rate of 9% for companies with a taxable income exceeding AEU 375 000 for financial years starting on or after 1 June 2023.

So what is next?
There are those who think that life will get easier now for the offshore financial centers (today’s PC term for yesterday’s tax havens), as given the massive uptake of the inclusive framework and the rapid planned roll-out of Pillar One rules, the global tax oversight busy-bodies will think their job has been done.  And to a large extent it has, the world’s mega-companies will likely pay more tax and have a more painful process than previously.  But for the smaller guys, life may actually get easier.

Things are moving fast in the world of tax, and it is more important than ever to ensure that your structuring is done right and understand the impact of the changes on your business.

Speak to us about how the changes would impact you and your business.

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How can we help?

How you structure your business is a critical question as you expand globally.  The right structure will protect your assets, improve your currency position, support your business operations, facilitate future business expansion and changes, and optimise your overall tax rate. Trying to unscramble a sub-optimal structure entered into in haste or without full consideration of relevant facts is complex and expensive, so it’s important to plan upfront.

Structuring an international business is both a science and an art – this is our specialist area of expertise. Regan van Rooy is an international tax and structuring advisory firm focussing on Africa. We have offices in South Africa, Mauritius and Ireland and we can help you with any international tax or structuring query.