The ECCT's Tax committee arranged a lunch on the topic of Taiwan's implementation plan for Pillar Two Global Anti-Base Erosion ("GloBE") Rules. The event featured a presentation by Sung Hsiu-Ling, Director-General of the Taxation Administration under the Ministry of Finance, in which she provided an overview of Taiwan's implementation plan and process to establish a minimum tax rate for multinational enterprises (MNCs). In addition, Lynn Chen, Co-Chair of ECCT Tax Committee & Tax Partner at KPMG, gave a presentation on new Base Erosion and Profit Sharing (BEPS) rules.

The speaker began with an overview of international anti-tax avoidance trends, including how multinational enterprises (MNEs) exploit tax system loopholes, differences in tax treaties, and harmful tax competition to minimize their overall tax burden. To address these issues, it is important to ensure consistency, substance, and transparency in tax regulations. Specific measures should include preventing treaty abuse, clear rules and disclosure requirements for tax planning in order to prevent MNEs from eroding tax bases and ensure governments can collect fair taxes.

Taiwan needs to continuously adjust its tax system to align with international standards, which is why it is important to join the Multilateral Convention on Mutual Administrative Assistance in Tax Matters and sign tax agreements that meet new international transparency standards. It is also necessary to review domestic tax incentives to ensure they do not constitute harmful tax practices. In addition, it is important to not be listed as a non-cooperative tax jurisdiction to avoid sanctions and maintain the competitiveness of Taiwanese enterprises.

The speaker went on to introduce BEPS rules. Pillar 1 allocated taxing power to the tax jurisdiction where the market is located and Pillar 2 ensures that multinational conglomerates pay minimum tax. Under BEPS 2 rules, MNEs (defined as global corporations with annual revenues exceeding €750 million), will be subject to a minimum effective tax rate (ETR) of 15%. If the ETR of MNE members in each country does not reach 15%, the difference in tax should be paid to the "implemented" GMT country. If GMT is not implemented, the tax burden of large MNEs in that country's members whose ETR does not reach 15% will flow to the country that implements GMT.

To date, 142 countries have expressed support for GMT, 61 countries have announced the adoption of GMT measures, 37 countries have already completed legislation, 15 have completed drafts, while another nine are discussing drafts.

She outlined the scope of GMT, the criteria for MNEs, and mechanisms used, including the Income Inclusion Rule (IIR), Undertaxed Payment Rule (UTPR), and Qualified Domestic Minimum Top-up Tax (QDMTT), which are part of the GMT framework. The IIR is applied when a member of an MNE in a low-tax jurisdiction has an effective tax rate (ETR) below 15%. In such cases, a top-up tax is imposed to bring the ETR up to 15%. If there is an IIR in place, the top-up tax is applied to ensure the ETR reaches 15%. If there is no IIR, the tax revenue may be lost to other jurisdictions that have implemented the IIR, which highlights the importance of having the IIR to prevent tax revenue loss and ensure that MNEs pay a minimum level of tax.

The UTPR is a mechanism to address situations where the Effective Tax Rate (ETR) of an MNE is below 15% by applying a supplementary tax. The rule ensures that taxes are collected even if the Income Inclusion Rule (IIR) is not applicable. Countries can choose to adopt QDMTT to secure supplementary taxes from low-tax jurisdictions within their borders. This tax can be included in the numerator of the ETR and, once peer-reviewed and recognized, can directly reduce supplementary taxes.

The speaker noted that there are still some issues yet to be resolved. For example, the OECD has not yet announced the method of reviewing the GMT system of non-members.

In order to obtain reasonable tax quotas for large MNEs, various countries are vigorously promoting GMT, including countries with close economic, trade and investment exchanges with Taiwan (such as the European Union, Canada, Australia, Japan, South Korea, and Vietnam). Singapore and Hong Kong will also implement GMT in 2025. With legislation in place, and if approved by peer review, one-for-one supplementary tax will be offset, reducing the cost of collection and reducing the risk of double taxation for MNEs. The OECD has yet to release the results of its peer review.

As to the path forward for Taiwan, the first step is to amend domestic laws in accordance with the OECD GMT legislative model. After peer review and approval, Taiwan should also accept GMT approved by other countries. While simultaneously lowering the costs for both tax collectors and reducing the risk of double taxation, Taiwan should simultaneously review domestic tax incentives, or increase the AMT tax rate, increase the number of members of large MNEs in the ETR of Taiwan, reduce the generation of supplementary taxes, naturally reduce the risk of double taxation, and at the same time declare that Taiwan is willing to cooperate in tax collection and not provide harmful tax competition.

Taiwan has already drafted legislation to set an AMT collection rate and sent it to the Executive Yuan for approval. An official announcement is expected by the end of 2024. As for implementation, the government will revise domestic laws based on the OECD GMT legislative model and seek multilateral, bilateral, or unilateral methods to reduce costs and minimize the risk of double taxation.

For their part, MNEs should carefully review their global investment structures to avoid establishing group members in jurisdictions with an ETR below 15%, unless there are valid business reasons. This approach would help to reduce the occurrence of top-up taxes. In addition, setting up group members in countries with tax treaties (currently 35) can provide benefits from the treaties and protection through bilateral communication mechanisms. By minimizing top-up taxes and having treaty protection, MNEs can naturally reduce the risk of double taxation. Furthermore, increasing the ETR numerator by raising the AMT collection rate to 15% for members in Taiwan would help to reduce the occurrence of top-up taxes.

In her presentation Lynn Chen highlighted some trends and global tax developments. Prior to BEPS rules (before 2015), there was more focus on legal formality, a lack of transparency on tax information and a lack of communication among countries' tax authorities. In the post BEPS era, there has been more focus on transaction substance, better transparency on tax information and closer collaboration among tax authorities. Since BEPS 2, there has been more focus on the digital economy and ESG, efforts to align tax regimes with business models, new rules on splitting profits and tax information disclosure.

Countries have reacted by setting a target of 15% GMT and re-examining tax policies and incentives to align with the GloBE framework and implementing QDMTT. The new era raises questions like whether or not tax holidays will still be available in the future.

GloBE has already been implemented in some EU member states and poses major challenges to MNE and tax professionals. The primary responsibilities rest on the Ultimate Parent Entity (UPE) to properly comply with complex tax reporting and computation. Since filing GloBE Information Return, “GIR” will happen as early as 2026, seamless collaboration among UPE and group entities will be essential.