OECD’s Pillar One global deal review: How will it affect non-resident business owners?
Since recent years, the Organization for Economic Cooperation and Development (OECD) has actively worked on reforming the international tax system. One of the most important results of these efforts was the implementation of the global agreement Pillar 1. This agreement aims to change the rules on the distribution of profits for the largest multinational companies that operate in several markets but may not have a physical presence in the country of income.
Who is covered by the Pillar 1 Agreement?
The deal covers large international groups of companies with annual revenues of more than 20 billion euros and pre-tax profit margins of more than 10%. This means that small and medium-sized companies, as well as companies that do not achieve these indicators, are not yet covered by Pillar 1.
In addition, some sectors of the economy, in particular the extractive industry and the financial sector, are currently excluded from the scope of this agreement. This provides more flexibility for such companies in matters of tax planning.
How will the owners of non-resident companies be affected?
Owners of non-resident companies, especially those with operations in multiple jurisdictions, should be prepared for the new profit sharing rules. Pillar 1 provides for the redistribution of about 25% of the residual profits of international corporations to countries where sales or services occur, even if the company is not physically present in that country. This may lead to additional tax obligations in the countries of the sales market.
For owners of non-resident companies, this also means that avoiding double taxation becomes an even more pressing issue. Since income can be distributed in several countries, it is important to prepare in advance for the possible need to pay taxes in each of these jurisdictions.
When will it be implemented?
Pillar 1 is expected to be fully implemented in 2024, with initial phases in 2023. For the first companies, the new rules will come into effect from the next tax period, and for others, the changes will be gradually implemented until 2025.
Which countries will be affected?
Pillar 1 will have the greatest impact on countries where companies sell but do not have a physical presence. In particular, this will affect countries with developed sales markets, such as the USA, the EU, China and other economically active regions. For companies registered in the UK, this can be a serious challenge if the main income comes from overseas sales.
What are the stages of implementation?
First phase (2023): The OECD plans to begin the first steps to implement Pillar 1 with the preparation of documents and tax reporting for large corporations.
Second phase (year 2024): Major implementation of the new rules, when companies begin to redistribute profits between different jurisdictions.
Third stage (2025): The revenue threshold for Pillar 1 companies is expected to be reduced to €10 billion. This will reach more companies and force them to adapt to new conditions.
Conclusions for owners of non-resident companies
Pillar 1 is part of a global reform that aims to ensure a fair distribution of income among countries. For non-resident company owners, this means reviewing current business strategies and tax planning.
What should be done?
Risk assessment: Audit companies to determine how the new regulations will affect your business.
Profit sharing: Check the current profit sharing rules between jurisdictions.
Consultations with tax lawyers: Get professional advice on optimizing the tax burden in accordance with the new Pillar 1 rules.
Latest news and trends
Recent changes in tax planning and international corporate law indicate that business is increasingly oriented towards global taxation standards. The implementation of the Pillar 1 agreement is another step in this direction, and companies operating in global markets must be ready to adapt their strategies.
The review was prepared by GLS Law Company specialists. If you have questions about the global tax changes and how they may affect your company, please contact us for advice.
