Global Daily Tax News, Nine Territories Sign Up To New Pillar Two STTR MLI, (Sep 20, 2024)

Nine jurisdictions opted to sign the Pillar Two Subject to Tax Rule (STTR) multilateral instrument, at a signing ceremony on September 19, 2024, with others said to have signalled their intention to do so.

The STTR primarily protects the rights of developing countries. It allows source jurisdictions to "tax back" where defined categories of intra-group covered income are subject to nominal corporate income tax rates below the STTR minimum rate of nine percent, and domestic taxing rights over that income have been ceded under a treaty.

The STTR takes priority over the GloBE Rules (additional tax payable as a result of STTR is creditable under those rules) and is designed to help developing Inclusive Framework members to protect their tax base.

More than 70 developing country members of the Inclusive Framework are eligible to request inclusion of the STTR in their agreements with other members of the Inclusive Framework.

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.

The OECD said: "Developing countries are often the source of significant outbound payments that can be subject to low or no taxation. The STTR provides developing countries with a more straightforward tool to help ensure they receive their fair share of tax revenue by taxing any such payments when they are undertaxed in the recipient's jurisdiction, helping to protect their tax base."

"The STTR may be implemented by joining the STTR MLI or by bilateral amendments to tax agreements. The active participation of jurisdictions in today's event is evidence of the strong commitment among Inclusive Framework members to the policy goals of the STTR. During the signing ceremony, 19 members of the Inclusive Framework joined the ceremony to sign, or to signal their intention to sign, the STTR MLI as soon as internal processes are finalized. The signing ceremony represents an important milestone for developing countries in the implementation of the second pillar of the Two-Pillar Solution to Address the Tax Challenges Arising from the Digitalisation of the Economy."

The STTR MLI was signed by Barbados, Belize, Benin, Cabo Verde, the Democratic Republic of Congo, Indonesia, Romania, San Marino, and Turkey.

Further, the following countries have indicated their intention to sign the MLI in the future: Belgium, Bulgaria, Costa Rica, Mongolia, Portugal, Senegal, Seychelles, Thailand, Ukraine, Uzbekistan.