Enforcing Secondary Taxing Rights: Subject to Tax Rule in the UN Model Tax Convention

cally the US Tax Cuts and Jobs Act (TCJA) of 2017.4 The Pillar Two on the other hand seeks to institute a IIR and UTPR were replicas of the Global Intangible Low- global minimum effective corporate tax rate of 15%, Taxed Income (GILTI) and the Base Erosion and Anti- which must be paid by the MNE for the revenues de- Abuse Tax (BEAT), respectively. [...] Design Limitations of the STTR manner the developing countries will also be able to benefit as the STTR comes first in the rule order, hence The original goal was to have a broad and simple to op- giving the first right of taxation to the source countries erate rule, but what now exists is a severely constricted - which are mainly developing countries. [...] country level to the average of the rates applied on inter- est payments with all the tax treaty partners of the coun- Further, the administration of the ‘connected per- try, the average of the rates applied on royalty payments sons’ test may be onerous. [...] average rate above the STTR, and 3 countries out of the The development of a UN MLI would provide a great remaining 4 countries have an average rate of almost fillip to the UN MTC and be of much help to the develop- T A X COOPE RA TI ON POLI CY BRI EF Page 5 Enforcing Secondary Taxing Rights: Subject to Tax Rule in the UN Model Tax Convention Figure 3: Average tax rate for interest and royalties (. [...] Pillar Two, the GLoBE rules give priority to the developed Scope countries, and it is mainly the Subject to Tax Rule (STTR) that will benefit developing countries by enforcing the The STTR should apply to all payments covered in the secondary taxing right in tax treaties.