Article 7.3.1 of the OECD Model Rules permits a constituent entity to to make a Distribution Tax Regime Election. This is an annual election on a jurisdictional basis.
A distribution tax regime is a tax regime that doesn’t levy a tax charge on taxable income when it is generated, but when it is distributed.
Estonia is a good example of this, which levies a 20% corporate income tax charge when profits are distributed (see: Pillar Two GloBE Rules and Estonia’s Distribution Tax).
In order to ensure that expenses that are not deductible for tax purposes are also taxed, non-business expenses are treated as a deemed distribution and would also be subject to the distribution tax.
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