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Pillar Two: STTR Implementation

The Subject to Tax Rule (STTR) is a key component of Pillar Two, and unlike the GloBE Rules focuses on source jurisdictions. 
 
It is a treaty provision to be inserted in certain double tax treaties with developing countries that allows a source State to recapture some of the taxing rights on intragroup payments, where the income is taxed in the residence State at a rate less than 9%.
 
The STTR will be included in bilateral double tax treaties with members of the Inclusive Framework (IF) when requested to do so by developing countries. IF jurisdictions considered as developing for this purpose are those with a Gross National Income per capita, calculated using the World Bank Atlas method, of USD 12,535 or less in 2019 (as updated).
 
For more information on the STTR, see Pillar Two: Subject-To-Tax Rule.
 
On September 19, 2024, the OECD held the signing ceremony for the Multilateral Convention to Facilitate the Implementation of the Pillar Two Subject to Tax Rule (the ‘MLI’).
 
The MLI applies to Covered Tax Agreements, which are existing bilateral tax treaties that are explicitly identified by each of the parties to those tax treaties, and directly amends Covered Tax Agreements in order to implement the STTR.
 
The table below shows jurisdictions that have currently signed the MLI, the covered tax agreements that have been identified and outlines any specific additional notifications that jurisdictions have made under the MLI. 

STTR: MLI Signatories and Specified Covered Tax Agreements

Signatory:AlbaniaBarbadosBelizeBeninCabo VerdeDemocratic Republic of CongoIndonesiaRomaniaSan MarinoTurkey
Status: Signed/Ratified/In ForceSignedSignedSignedSignedSignedSignedSignedSigned (Public Consultation on a draft law). RatifiedSigned
Covered Tax Agreements:BelgiumBotswanaSwitzerlandUAEAngolaSouth AfricaArmeniaBelgiumAzerbaijanBahrain
Czech RepublicChinaUAEMoroccoMacauBelgiumBelgiumCzech RepublicGeorgiaCote d’Ivoire
EgyptKenyaMauritiusUAEBruneiEstoniaMalaysiaCzech Republic
EstoniaMauritiusMoroccoQatarCzech RepublicHong KongRomaniaEgypt
HungaryMexicoPortugalTurkeyEgyptHungarySerbiaEstonia
IsraelPanamaSenegalHong KongIsraelVietnamGeorgia
KuwaitSingaporeHungaryKoreaIsrael
LatviaSpainJordanKuwaitJordan
MalaysiaKuwaitLatviaKazakhstan
MaltaLuxembourgLithuaniaKorea
NetherlandsMalaysiaLuxembourgKuwait
PolandMongoliaMaltaLatvia
QatarMoroccoNetherlandsLithuania
RomaniaNetherlandsPolandMalaysia
Saudi ArabiaPakistanPortugalMalta
SerbiaPolandQatarMongolia
SingaporePortugalSan MarinoMorocco
SpainQatarSaudi ArabiaNigeria
SwitzerlandRomaniaSingaporeOman
TurkeySerbiaSpainPakistan
UAESeychellesSwitzerlandPoland
SingaporeUAEPortugal
SpainUruguayQatar
SwitzerlandRomania
ThailandSaudi Arabia
TurkeySerbia
UkraineSingapore
UAESpain
UzbekistanSwitzerland
Thailand
Ukraine
UAE
Uzbekistan
Notifications
Annex IV (jurisdictions can decide to adopt their specific definition of the term “recognised pension fund” for applying the STTR or use their existing treaty definition). Under Article 6(2) of the Convention, Benin elects to include the definition of the term “recognized pension fund” in Annex IV (Additions to the Tax Liability Rule: Definition of a Recognized Pension Fund) with the agreement with Morocco. Under Article 6(2) of the Convention, the Democratc Republic of the Congo elects to include the definition of the term “recognized pension fund” in Annex IV (Additions to the Tax Liability Rule: Definition of a Recognized Pension Fund) with all the above agreements.Under Article 6(2) of the Convention, Indonesia elects to include the definition of the term “recognized pension fund” in Annex IV (Additions to the Tax Liability Rule: Definition of a Recognized Pension Fund) with all the above agreements.Under Article 6(2) of the Convention, Romania elects to include the definition of the term “recognized pension fund” in Annex IV (Additions to the Tax Liability Rule: Definition of a Recognized Pension Fund) with all the above agreements.Under Article 6(2) of the Convention, San Marino elects to include the definition of the term “recognized pension fund” in Annex IV (Additions to the Tax Liability Rule: Definition of a Recognized Pension Fund) with all the above agreements.
Annex V (optional circuit-breaker provision that switches off STTR when a developing country becomes a developed country (and switches it on in a reverse case)).Under Article 7(2) of the STTR Convention, Barbados chooses to include Annex V (Additions to the subject to tax rule: Circuit-breaker provision) in its Covered Tax Agreements Under Article 7(2) of the STTR Convention, San Marino chooses to include Annex V (Additions to the subject to tax rule: Circuit-breaker provision) in its Covered Tax AgreementsUnder Article 7(2) of the STTR Convention, Turkey chooses to include Annex V (Additions to the subject to tax rule: Circuit-breaker provision) in its Covered Tax Agreements
Annex II (Tax calculated other than on a net income basis) Under Article 4(1) of the STTR Convention, Business Income Tax is a tax computed on an alternative basis and is subject to the STTR. Under Article 4(1) of the STTR Convention, the 1% turnover tax is a tax computed on an alternative basis and is subject to the STTR. Under Article 4(1) of the STTR Convention, the tax on the income of micro enterprises (Article 51 of Law No 227/2015) is a tax computed on an alternative basis and is subject to the STTR.

Picture of Lee Hadnum

Lee Hadnum

Lee is a qualified Chartered Accountant and a former Senior Tax Analyst at Bloomberg Tax. Lee began his career in Ernst & Young's Entrepreneurial Services department and has 20 years of international tax planning experience.

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