Introduction of minimum global tax and its effects in North Macedonia - Pillar 2

The Model Rules (GloBE Rules) under Pillar 2 of the OECD/G20 Inclusive Framework (BEPS), have set the rules for implementation of a global minimum tax of 15 percent, which will affect around 8,000 of the largest multinational companies worldwide. Countries from the European Union and a number of other jurisdictions have introduced these rules into their domestic legislation, with application from the beginning of 2024.

The 15% minimum global tax rules will apply to a multinational group (MNE) that:

• in at least two of the four years immediately preceding the tested fiscal year,

• has an annual income of at least 750 million euros in the consolidated financial statements of the ultimate parent company.

Based on these rules, a MNE will have to pay top-up corporate income tax for its companies operating in other jurisdictions, if the effective tax rate of the companies in the countries where they operate is lower than the minimum global rate of 15%.

The basic rule is the top-up tax to be collected in the country of the ultimate parent company of the MNE, if this country has introduced the GloBE rules. If not the case, the top-up tax can be collected from the lower parent company that is next in the ownership structure of the Group (the top-down approach). If this is also not possible, the backup rule applies, where the top-up tax can be calculated at the level of another member of the group located in a country that applies the GloBE rules. The backup rule has a delayed application from 2025 onwards.

Considering the low corporate income tax rate (of 10%) in North Macedonia, and especially the exemption from payment of tax for companies in the Technological-Industrial Development Zones (TIDZ), as well as other individual state aid measures related to corporate income tax, the global minimum tax rules should affect those Macedonian companies which are members of the largest MNEs. In the affected cases, the tax savings realized from the business operations in Macedonia would not have an effect at the group level anymore, because the tax that is saved locally, would be paid in the country of the parent company until it reaches 15%.

For these reasons, MNEs that are present in North Macedonia and qualify for global minimum tax, should make a detailed analysis of its tax consequences at the local level. For this purpose, it is necessary for a MNE to determine the effective tax rate of their companies in North Macedonia, by applying the special GloBE rules. In the analysis, they will also need to take into account potentially applicable exemptions from global minimum tax, such as:

the tax exemption for local companies with low income and profit (according to GloBE criteria);
the tax exemption for the part of the profit of the local company that results from performing essential economic activities in the country (the so-called substance-based carve-out).

On the other hand, in order for the country to remain attractive for investments, the policy makers will have to analyze what kind of tax incentives to include in the domestic regulation and to negotiate with potential investors. Otherwise, some of the current investment support schemes may not be attractive to investors since the corporate income tax related exemptions and state aid measures offered locally, may lead to an additional tax liability for the investor abroad.

It is also expected for the policy makers to analyze the effects of the new global minimum tax rules from a local budget revenue perspective and decide whether North Macedonia should implement rules for collection of the top up tax in the domestic budget.