Act on Global Corporate Tax Harmonization for Equitable Revenue Distribution

Proposal for a World Parliament Act on Global Corporate Tax Harmonization for Equitable Revenue Distribution

Preamble

WHEREAS, the existing international corporate tax framework has facilitated profit shifting and tax base erosion by multinational enterprises (MNEs), leading to significant revenue losses for sovereign states and exacerbating global economic inequalities;

WHEREAS, a fragmented and uncoordinated approach to corporate taxation undermines fair competition, distorts investment decisions, and hinders sustainable development;

WHEREAS, the principle of equitable revenue distribution requires a framework that ensures MNEs contribute their fair share to the public finances of jurisdictions where economic activity occurs and value is created;

WHEREAS, international cooperation and harmonization are essential to address the challenges posed by the digitalization of the economy and the globalization of business operations;

NOW, THEREFORE, the World Parliament, in its commitment to fostering global economic stability, fairness, and development, hereby enacts the following Act:

Article 1: Definitions

For the purposes of this Act:

1. "Multinational Enterprise (MNE) Group" refers to any group that includes at least one entity or permanent establishment that is not located in the same jurisdiction as the ultimate parent entity.
2. "Ultimate Parent Entity (UPE)" refers to the entity that owns, directly or indirectly, a controlling interest in all other entities of the MNE Group and that is not itself owned, directly or indirectly, by another entity.
3. "Covered MNE Group" refers to an MNE Group with consolidated annual revenues exceeding a threshold specified in Article 3.
4. "Adjusted Covered Taxes" refers to the income or profits taxes paid or accrued by an MNE Group entity, adjusted for permanent differences, deferred tax adjustments, and other specified items to ensure comparability.
5. "Effective Tax Rate (ETR)" refers to the Adjusted Covered Taxes divided by the MNE Group's adjusted profit before tax for a given jurisdiction.
6. "Minimum Global Corporate Tax Rate" refers to the lowest acceptable effective tax rate for Covered MNE Groups, as specified in Article 4.
7. "Revenue Distribution Mechanism" refers to the framework for reallocating taxing rights or tax revenues among jurisdictions.

Article 2: Objectives

This Act aims to:

1. Establish a harmonized global corporate tax framework that reduces opportunities for profit shifting and tax base erosion.
2. Ensure that Covered MNE Groups pay a minimum level of tax on their profits, regardless of where they operate.
3. Promote a more equitable distribution of corporate tax revenues among jurisdictions, particularly benefiting developing economies.
4. Enhance transparency and predictability in international corporate taxation.
5. Foster fair competition and a level playing field for businesses worldwide.

Article 3: Scope and Application

1. This Act shall apply to all MNE Groups with consolidated annual revenues exceeding Seven Hundred and Fifty Million (750,000,000) Special Drawing Rights (SDR) or its equivalent in a major currency, in at least two of the four fiscal years immediately preceding the fiscal year in question.
2. Specific exclusions may be granted for governmental entities, international organizations, non-profit organizations, and pension funds, as defined by World Parliament regulations.

Article 4: Minimum Global Corporate Tax Rate

1. All Covered MNE Groups shall be subject to a Minimum Global Corporate Tax Rate of Fifteen Percent (15%) on their profits generated in each jurisdiction where they operate.
2. Where the Effective Tax Rate of a Covered MNE Group in a particular jurisdiction falls below the Minimum Global Corporate Tax Rate, a top-up tax shall be applied to bring the MNE Group's overall ETR in that jurisdiction up to the Minimum Global Corporate Tax Rate.

Article 5: Pillar Two - Global Anti-Base Erosion (GloBE) Rules

1. Income Inclusion Rule (IIR): The UPE of a Covered MNE Group shall be required to pay a top-up tax in respect of the low-taxed profits of its constituent entities.
2. Undertaxed Payments Rule (UTPR): Where the UPE jurisdiction has not applied an IIR, or has not fully applied it, other jurisdictions where constituent entities are located may apply a UTPR to deny deductions or require an equivalent adjustment for payments made to low-taxed constituent entities, ensuring the residual top-up tax is collected.
3. Qualified Domestic Minimum Top-up Tax (QDMTT): Jurisdictions may elect to introduce a domestic minimum top-up tax, consistent with the principles of this Act, to collect the top-up tax on low-taxed profits of MNE constituent entities within their own jurisdiction. This QDMTT shall take precedence over the IIR and UTPR.

Article 6: Revenue Distribution Mechanism

1. Revenues generated from the application of the top-up tax under Article 5 shall primarily accrue to the jurisdiction applying the IIR or UTPR, or to the jurisdiction implementing a QDMTT.
2. The World Parliament shall establish an Equitable Revenue Distribution Fund to address specific needs of developing economies and jurisdictions disproportionately affected by historical tax base erosion. A percentage, to be determined by subsequent World Parliament regulation, of the incremental revenues collected through this Act by high-income jurisdictions, shall be contributed to this Fund.
3. Detailed criteria for contributions to and disbursements from the Equitable Revenue Distribution Fund, focusing on development indicators, economic vulnerability, and tax capacity, shall be developed by the World Parliament's Fiscal Committee.

Article 7: Reporting, Transparency, and Administration

1. Covered MNE Groups shall be required to submit a standardized Global Anti-Base Erosion (GloBE) Information Return annually to the tax authority of the UPE jurisdiction, containing all necessary information to calculate the ETR and top-up tax for each jurisdiction.
2. Jurisdictions shall implement appropriate mechanisms for the exchange of GloBE Information Returns and other relevant tax information, consistent with existing international standards such as the Common Reporting Standard and Country-by-Country Reporting.
3. The World Parliament's Fiscal Committee shall be responsible for developing detailed administrative guidance, safe harbors, and implementation frameworks to ensure consistent application of this Act.

Article 8: Dispute Resolution

1. Any disputes arising from the interpretation or application of this Act between jurisdictions shall be resolved through established international tax dispute resolution mechanisms, including mutual agreement procedures and, where applicable, mandatory binding arbitration.
2. The World Parliament shall establish a dedicated International Tax Arbitration Panel to facilitate the efficient and impartial resolution of such disputes.

Article 9: Implementation and Review

1. Member States of the World Parliament shall transpose the provisions of this Act into their national laws and regulations within a period of Two (2) years from its date of enactment.
2. The World Parliament shall undertake a comprehensive review of this Act every Five (5) years to assess its effectiveness, address emerging challenges, and propose necessary amendments.

Article 10: Entry into Force

This Act shall enter into force on the first day of January following the year of its enactment by the World Parliament.