A global network of independent accounting firms.
Pillar One will initially apply only to multinational enterprises with a global turnover of more than €20bn and a pre-tax profit margin above 10%.
The Pillar One rules would allocate more profits to markets with whom the businesses interact, regardless of their physical presence there. This Pillar also aims at developing a new non-physical presence nexus rule not dependent on physical presence but largely based on sales. In addition, new profit allocation methods going beyond the arm’s length principle are introduced. These methods include:
Based on the Pillar Two rules, multinational groups with a global annual turnover above €750m should be subject to a minimum effective tax rate of 15% in every jurisdiction where they realise profits.
On the face of it, SMEs will likely not be affected by the Pillar One and Two rules, given the high thresholds set for application. However, in the near future Pillar One and Two could prove to be the thin end of the wedge, with the new Pillar standards ultimately becoming the SME standards both in the EU and the world over.
International Tax Specialist and Tax Director of Kreston Europe