On 4 August 2023, Canada issued draft legislation aimed at implementing the “Pillar Two” global minimum tax framework established by the Organisation for Economic Co-operation and Development (OECD) and the G-20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS). This rule is applicable for multinational enterprises (MNE groups) with consolidated revenues amounting to at least €750 million.
Under this draft legislation, MNE groups will be obligated to calculate their effective tax rates (ETR) for each country in which they have a subsidiary or permanent establishment. Should the ETR for a specific country fall below the threshold of 15%, a supplementary tax will be imposed to bring the ETR up to that 15% mark.
Canada has released draft Global Minimum Tax Act (GMTA) to implement Pillar Two rule. The GMTA closely follows the model rules and OECD commentary but includes a provision stating that it should be interpreted in line with these rules, commentary, and future OECD guidance. Nonetheless, there are notable differences in the structure and drafting of the GMTA compared to the model rules. It is advisable to conduct a thorough review of the draft legislation to ascertain its application to multinational enterprise (MNE) groups.
Public comments on the draft legislative proposals are due by 8 September 2023, except for comments on the Pillar Two rules which are due by 29 September 2023.
