Purpose

The Global Minimum Tax Act has come up with the global minimum tax (minimum top-up tax) under Pillar Two as developed by the Organisation for Economic Co-operation and Development (OECD)/G20 Inclusive Framework on Base Erosion and Profit Shifting. It was agreed by over 135 member jurisdictions of the OECD/G20 in October 2021, the two-pillar solution is a historical agreement that aims to address the tax challenges arising from the globalisation and digitalisation of the economy. Since then, the implementation of the Global Minimum Tax has progressed with various jurisdictions already taking steps towards implementation.

Scope

This law applies to a Multinational Enterprise (MNE) Group, if following condition is met:

Revenue reported in the consolidated financial statements of the ultimate parent entity of the MNE group is equal to or greater than the revenue threshold (determined by using formula given below) in at least two of the four fiscal years immediately preceding the particular fiscal year.

 

The revenue threshold for a fiscal year means the amount determined by the formula:

(A × B ÷ 365)

Where-

A is €750 million; and

B is the number of days in the fiscal year.

 

Example:

If A Limited (located in Canada) is the subsidiary of B Limited (located in Ireland) and B Limited is the subsidiary of C Limited (located in India). Then C Limited will be the ultimate parent entity and revenue threshold is to be taken into consideration at the level of C Limited (which is ultimate parent entity). If revenue threshold of the group is €750 million or more for a fiscal year (€2.05 million or more per day) then this law will be applicable.

 

Commencement and enactment

Bill C-69 was introduced on May 2, 2024 and received Royal Assent on June 20, 2024 and became enacted. The Global Minimum Tax Act applies to fiscal years of a qualifying MNE group that begin on or after December 31, 2023.

 

Requirements under the law

1. Payment of annual top-up tax (minimum tax) at the rate of 15% on or before the GIR due date for the fiscal year. First ever payment under this law shall be made on or after 30^th June, 2026.

For instance,

• if fiscal year of an entity ends on 31^st December, 2024 it shall pay minimum tax for the first time by 30^th June, 2026 (i.e. 18 months of closure of relevant fiscal year) and thereafter by 31^st March every year (i.e. 15 months of closure of the fiscal year).
• if fiscal year of an entity ends on 31^st March, 2025 it shall pay minimum tax for the first time by 30^th Sept, 2026 (i.e. 18 months of closure of relevant fiscal year) and thereafter by 30^th June every year (i.e. 15 months of closure of the fiscal year).

 

2. Filing of annual return in respect of top-up tax (minimum tax) on or before the GIR due date for the fiscal year (Refer point 1 for explanation).

 

3. Filing of GloBE Information Return (GIR) on or before the GIR due date for the fiscal year (Refer point 1 for explanation).

 

4. Maintenance of records that are necessary to determine whether the person has complied with this Act.

 

Important definitions

An MNE group means a group that includes at least one entity or permanent establishment that is not located in the jurisdiction in which the ultimate parent entity of the group is located.

 

A group means-

(a) an ultimate parent entity and one or more other entities each of whose assets, liabilities, income, expenses and cash flows, by reason of ownership or control, either

(i) are included in the consolidated financial statements of the ultimate parent entity, or

(ii) would be included in the consolidated financial statements of the ultimate parent entity but for an exclusion on size or materiality grounds, or on the grounds that the entity is held for sale; or

(b) an entity that

(i) is not part of a group described in paragraph (a), and

(ii) has one or more permanent establishments that are not located in the jurisdiction in which the entity is located.

 

An ultimate parent entity means

(a) an entity

(i) that has, directly or indirectly, a controlling interest in any other entity, and

(ii) in which no other entity has, directly or indirectly, a controlling interest; or

(b) the main entity of a group that is described in clause (b) of the definition of “Group”.

 

GIR due date, in respect of a qualifying MNE group for a fiscal year, means the later of

(a) June 30, 2026; and

(b) the day that is

(i) 18 months after the last day of the fiscal year, if the fiscal year is the earlier of

(A) the first fiscal year for which a constituent entity of, or joint venture entity in respect of, the MNE group that is located in Canada is subject to Part 3, and

(B) the first fiscal year that a constituent entity of, or joint venture entity in respect of, the MNE group is subject to a qualified IIR or qualified UTPR; and

(ii) 15 months after the last day of the fiscal year, in any other case.

 

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