The Belated Pillar 2 Subject-to-Tax Rule, Part 2

Abstract

Exceptions to a tax rule can be very intriguing. They are sometimes required to ensure it does not produce unintended outcomes. However, if they are too numerous, they can be used by savvy taxpayers (and their lawyers) to arrive at those outcomes one way or another. Numerous exceptions can also threaten the legal certainty that tax rules should ideally provide. As it was presented by the OECD on July 17, 2023, the subject-to-tax rule (STTR) of pillar 2 is filled to the brim with caveats, special provisions, and exceptions. In fact, one-third of the paragraphs that make up the STTR are focused either on deviations from the general rule or on clarifying what is outside of its scope. I have expressed my concern in the first part of this series about the complexity of the STTR and whether it is truly designed to preserve the taxing rights of developing countries. In this article, as I go through the many exceptions to the rule, I hope you will conclude, as I did, that this version of the STTR is not a welcome addition to tax treaties across the globe.

Keywords: Pillar Two, GloBE, International Tax, BEPS, OECD, STTR, International Law, Tax Policy