CYIL vol. 14 (2023)

PAVLÍNA KRAUSOVÁ CYIL 14 (2023) solution and called on the Inclusive Framework to swiftly develop the model rules and multilateral instruments, with a view to ensure that the new rules will come into effect at the global level in 2023. 51 Pillar 1 deals with the allocation of additional taxing rights to market jurisdictions (such as revising the notion of nexus as part of the definition of a “permanent establishment”, allowing the taxing rights of the source country to be defined and revising the arm’s length’ standard with regard to the distribution of profits), while the Pillar 2 aims to require a global minimum tax to prevent the shifting of profits to states with low tax rates. 52 This article focuses on aspects of Pillar 2. 3.2 The Pillar Two Rules In 2021, for the first time, the world closed ranks around a corporate minimum tax in a feat of multilateral governance over globalization. 53 This project stems from an idea that tax competition produces a “race to the bottom” and threatens the existence of corporate income taxation as it compels nation states to rely on taxes on labour, land, and consumption instead. 54 Pillar Two is designed to secure that multinational enterprises pay a minimum tax of 15% on the local income arising in each jurisdiction where they operate. It consists of several interlocking rules that effectively provide jurisdictions with a right to tax where other jurisdictions have not exercised their primary taxing rights, or the payment is otherwise subject to low levels of effective taxation. 55 As countries prepare to implement the global minimum tax, its impact is widely debated. The gains from applying a minimum tax of 15% were quantified at 1.8%–2.2% of the global corporate income tax revenues according to the OECD’s economic impact assessment. 56 The implementation is being achieved through domestic legislation, but drafted model rules provide a template that jurisdictions can translate into domestic law. This should assist the countries in implementing Pillar Two within the agreed timeframe and in a coordinated manner. 57 The OECD released the Pillar Two Model Ruleson 20 December 2021, 58 just before the European Commission’s draft EU minimum 51 G20. (2021). G20 Rome Leaders’ Declaration. https://www.governo.it/sites/governo.it/files/G20ROMELEAD ERSDECLARATION_0.pdf p. 11. 52 OECD. (2012). Statement on a Two-Pillar Solution to Address the Tax Challenges Arising from the Digitalisation of the Economy, available at https://www.oecd.org/tax/beps/statement-on-a-two-pillar-solution-to-address-the tax-challenges-arising-from-the-digitalisation-of-the-economy-october-2021.pdf. 53 SAN JUAN, E. A. (2022). Fiscal Sovereignty: Tax Havens and the Demarcation of the Third World. The George Washington international law review , 54 (1), 43–101. p. 43. 54 EMBLAD, P. (2021). Power and Sovereignty: How Economic-ideological Forces Constrain Sovereignty to Tax. Nordic Journal on Law and Society , 4 (1), 10. https://doi.org/10.36368/njolas.v4i01.206 p. 15. 55 MATSUOKA, A. (2021). The New International Tax Regime: Analysis from a Power-Basis Perspective. SN Business & Economics , 1 (5), 68-68. https://doi.org/10.1007/s43546-021-00072-7 (SN Business & Economics) p. 14. 56 TANDON, S. (2021). Guest Editorial: The Reform of the International Tax System: State of Affairs. Intertax , 309–310. http://www.kluwerlawonline.com/api/Product/CitationPDFURL?file=Journals\TAXI\TAXI2021037. pdf p. 923. 57 Simplified version of the Pillar Two Rules available on the OECD webpage, for example https://www.oecd.org/ tax/beps/pillar-two-model-rules-in-a-nutshell.pdf accessed on 10.5.2023. 58 OECD. (2021c). Tax Challenges Arising from the Digitalisation of the Economy – Global Anti-Base Erosion Model Rules (Pillar Two): Inclusive Framework on BEPS. OECD, Paris . https://www.oecd.org/tax/beps/tax challenges-arising-from-the-digitalisation-of-the-economy-global-anti-base-erosion-model-rules-pillar-two.pdf.

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