12th October 2021, Skopje – Republic of North Macedonia is part of the countries and jurisdictions (136) which reached landmark agreement on corporate tax reform. This major tax reform of the international tax system comprises two pillars and refers to taxation of digital activities of multinational enterprises, as well as applying minimum global corporate tax rate for large MNEs. Under this agreement, developing countries will gain new taxing rights, allowing them to collect more tax revenues from the largest and the most profitable MNEs, including the highly digital companies.
Under Pillar One, more than USD 125 billion of profit is expected to be reallocated from around 100 of the world’s largest and most profitable MNEs to countries worldwide, ensuring that these firms pay a fair share of tax wherever they operate and generate profits. Some taxing rights will be re-allocated over MNEs from their home countries to the markets where they have business activities and earn profits, regardless of whether firms have a physical presence there, i.e. the market jurisdictions. Specifically, multinational enterprises, that can be considered as the winners of globalization, with global sales above EUR 20 billion and profitability above 10% are covered by the new rules, with 25% of their residual profit to be reallocated to market jurisdictions.
Pillar Two introduces a global minimum corporate tax rate set at 15%, which is estimated to generate around USD 150 billion in additional global tax revenues annually. The new minimum tax rate will apply to companies with revenues exceeding EUR 750 million.
Further benefits will also arise from the stabilization of the international tax system and the increased tax certainty for taxpayers and tax administrations. Global minimum tax will put an end to tax havens, thus lessening the incentives for MNEs to shift their profits out of the developing countries.
OECD assessment of the economic impact shows additional revenues for the low-, medium- and high-income countries.
Detailed implementation plan as regards both Pillars includes ambitious timeline, i.e. it is envisaged for this two-pillar solution to be implemented and come into effect from 2023 onwards.
This agreement is a response to the changes arising from digitalization and globalization affecting the economies and the life of the citizens and the challenges pertaining to the rules for taxing international business income, prevailing for more than one hundred years and resulting in large MNEs not paying their fair share of tax despite the huge profit they garnered.
Following intensive negotiations to harmonize the international tax system with the 21st century, Republic of North Macedonia, together with 136 jurisdictions, among which all Western Balkan countries, joined this landmark agreement, i.e. the consensus for Pillar One and Pillar Two under the Inclusive Framework on BEPS, resolving the tax challenges arising from the digitalization of the economy.