Canada Enacts Draft Legislation for Global Minimum Tax
Pillar Two Implementation on Track
15% Minimum Tax Rate Ensured
Canada has taken a significant step towards implementing the global minimum tax regime developed by the Organisation for Economic Cooperation and Development (OECD). On August 4, 2023, the Canadian government released draft legislation to enact the Canadian Global Minimum Tax Act.
The OECD's Pillar Two framework aims to ensure that multinational enterprises pay a minimum level of tax of at least 15% on their profits, regardless of where they are generated. Canada has committed to implementing the primary taxing rule in Pillar Two as of 2024.
The draft legislation released by the Department of Finance implements two key measures of Pillar Two:
- The Income Inclusion Rule (IIR), which imposes a top-up tax on profits of multinational enterprises that fall below the 15% minimum effective tax rate.
- The Undertaxed Profits Rule (UTPR), which imposes a withholding tax on payments made to a low-tax jurisdiction with respect to an undertaxed constituent entity.
The draft legislation also includes rules for determining the amount of top-up tax and withholding tax payable, as well as anti-avoidance provisions.
The Canadian government is seeking public feedback on the draft legislation until September 9, 2023. The government expects to finalize the legislation in the coming months and implement it in time for the 2024 tax year.
The enactment of the Canadian Global Minimum Tax Act is a significant step towards implementing the OECD's Pillar Two framework and ensuring that multinational enterprises pay their fair share of taxes.
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