These companies stand to benefit the most given the SBIE is based on the amount of tangible fixed assets and payroll costs in a jurisdiction.
However, such companies could also benefit from significant tax credits and other allowances in a jurisdiction given the level of tangible assets and payroll costs. This would operate to reduce the Pillar Two effective rate and potentially lead to top-up tax.
Therefore, there is to a certain extent an element of offset, with the higher substance-based income exclusion offsetting the lower effective tax rate.
The SBIE also lessens the impact of tax credits for low-profit margin companies.
The higher ratio of expenses to income means the SBIE carve-outs for these companies will be more significant, reducing top-up tax payable and lessening the impact of the GloBE rules whilst counteracting the impact of expenditure-based tax credits on the overall tax liability.
In this article we look at this issue in detail, including a detailed example.
If you haven’t got a subscription you can join up below.