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Delay in Implementation of Pillar Two Directives

On May 16th 2018, the United Arab Emirates (UAE) joined the OECD inclusive framework on Base Erosion and Profit Shifting and since then UAE has been constantly taking various measures for the implementation of BEPS standards primarily focusing on Action 5, 6, 13 and 14.

The OECD inclusive frameworks’ 137 member countries including United Arab Emirates joined the Two Pillar solution i.e., Global minimum tax rate for large multinational enterprises to address the tax challenges arising from the digitalization of the economy.

On December 20, 2021, OECD published its Model Rules for the Global Anti-Base Erosion Rules (GloBE Rules) following which European Commission issued an Initial minimum tax proposal on December 22, 2021.

The initial minimum tax proposal is a directive that ensures a minimum tax rate of 15% for large multinational enterprises and includes a set of rules on the calculation of effective tax rate paving a way for uniform applicability across the member states.

On 15 March 2022, the EU had a meeting regarding the proposed Pillar Two Directive and resolving key issues that include the implementation timeline and the link of Pillar Two with Pillar One.

On April 5, 2022, the EU had a meeting that has a few updates aimed at addressing concerns raised by four member states (Estonia, Malta, Poland and Sweden).

Draft Council Directive Main Points

  • Implementation timeline: The deadline for the transposition of the rules is extended to 31 December 2023.

As a result, the Income Inclusion Rule (IIR) would then be effective for fiscal years starting on or after 31 December 2023 (Previously January 1, 2023) and the Undertaxed Profit Rule (UTPR) will be applicable for fiscal years starting on or after 31 December 2024.

  • Election to delay the application of the rules: Member States can choose not to adopt the IIR and UTPR until 2025 subject to certain conditions.

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