Pillar Two: Growing with the Challenge
Liechtenstein has agreed, as a member state of the OECD/G20 Inclusive Framework against BEPS, to introduce a global minimum tax of effectively 15 per cent according to the Global Anti-Base Erosion Model Rules (GloBE Rules). Affected are Multinational Enterprises (MNE) with consolidated revenues of more than EUR 750 million. This applies to all legal entities including foundations, trusts and partnerships. The aim of the implementation of global minimum taxation is to prevent tax competition among states and to ensure that MNEs contribute to more fairness and transparency in taxation on a global level.
The national legislative process in Liechtenstein for the new «GloBE Law» is exemplary well advanced and allows for a timely application of the GloBE Rules as of January 1, 2024. However, the implementation of global minimum taxation still entails many uncertainties, especially regarding the impact on Liechtenstein’s tax revenue but also for the individual MNEs concerned.
On the occasion of these most current developments, Felder Sprenger + Partner AG (FS+P) has hosted a Pillar Two tax event. After an insightful introduction to the topic by Dr. Marco Felder, renewed speakers such as Bernhard Büchel (Head of the Liechtenstein Tax Administration), Prof. Vikram Chand (Associate Professor of Law at the University of Lausanne) and Peter Maddan (Head Group Controlling, Transfer Pricing and Tax Accounting of LGT Group) have shared their extensive knowledge on global minimum taxation in the presence of selected participants. The topic of global minimum taxation has been examined from a governmental perspective as well as from a MNE perspective and was very well received by the participants due to its practical relevance. During the presentations, the participants also actively contributed, which led to a lively discussion in which many open questions were addressed.
The presentation of the keynote speaker Prof. Vikram Chand has particularly sparked the participants' curiosity. In his introduction, he posed the rhetorical question whether the aim of the implementation of GloBE Rules, including Qualified Domestic Minimum Top-up Tax (QDMTT), to eliminate competitive advantages is just a narrative that we are told by the more powerful global players in tax policy. Furthermore, he demonstrated in his presentation that there are still recognized opportunities to achieve a lower rate – despite an effective minimum tax of 15 per cent – and thereby demonstrated what opportunities the GloBE Rules could have for Liechtenstein and its MNEs.
In the following, the key points of Prof. Vikram Chand’s presentation are summarized:
Prof. Vikram Chand explored the GloBE Rules and their effects from the perspective of governments and multinational companies (MNEs). His insights bring to light the nuances of the GloBE Rules, particularly how it changes the worldwide corporate tax landscape.
Before the GloBE Rules, governments could freely design various tax incentives, provided that they were compliant with BEPS Action 5. They could offer lower corporate tax rates or tax holidays to appeal to international businesses. The introduction of the GloBE Rules has curtailed this freedom. Now, governments need to reconsider and adjust their incentive policies to minimize the effects of GloBE Rules by aligning them with Qualified Refundable Tax Credits (QRTC). Importantly, Prof. Chand noted that these rules will not eliminate competition among states; they merely transform it. Countries will compete by providing incentives in the form of QRTCs or even subsidies.
For MNEs, the primary challenge with the GloBE Rules lies in managing the increase in administrative tasks and meeting compliance demands. As these businesses operate globally, they have to deal with diverse tax regimes. The responsibility is on them to understand and correctly implement these new rules, which are highly complex. This complexity also extends to safe harbours, which exempt businesses from GloBE Rules if specific conditions are met. However, even if an MNE group qualifies for a safe harbour, it must still comply with group-wide GloBE requirements such as preparing and filing a GloBE Information Return. In addition, the MNE Group will also have to file a tax return for QDMTT purposes in every jurisdiction in which it operates, adding an additional level of complexity.
In light of this, Prof. Chand raised a key point: many disputes are expected to arise. Therefore, it is necessary to develop a reliable platform for resolving such disputes.
*Anna Stark is a senior tax consultant of Felder Sprenger + Partner AG. Her main area is individual and corporate taxation, also in a cross-border context.
*Kinga Romanovska is an attorney at law and research associate in the Tax Policy Center of the University of Lausanne. Her main area of research is international tax competition and global minimum taxation (Pillar Two Global Anti-Base Erosion, GloBE Rules).