Hello. I'm Peter Repetto, a senior director in the tax legislation division at the Department of Finance Canada, and I will be speaking about part 2 of the bill.

Part 2 is a proposed new act that would implement the global minimum tax, known as “pillar two”, in Canada.

By way of background, Canada is one of 139 members of the Organization for Economic Co-operation and Development's G20 inclusive framework on base erosion and profit shifting that joined a two-pillar plan for international tax reform in 2021. Pillar two of that plan is a framework for a global minimum tax regime.

The pillar two rules are designed to ensure that the profits of large multinational businesses, which are those with annual revenues of at least 750 million euros, are subject to an effective tax rate of at least 15% in each jurisdiction in which they operate. This is intended to reduce the incentive for multinational businesses to shift their profits into low-tax jurisdictions and to set a floor on tax competition among countries.

The government originally announced its intention to implement pillar two in budget 2022, and then, in budget 2023, set out the proposed implementation time frame, starting in 2024.

As noted, the new global minimum tax act in part 2 of the bill would implement pillar two in Canada. More specifically, it contains legislation that would implement the primary pillar two rule, known as the income inclusion rule, or IIR, with effect for 2024. Generally, under that rule, Canada would impose a top-up tax on a Canadian-headquartered multinational enterprise when its profits in a foreign country have an effective tax rate below the 15% minimum rate. This tax would bring the effective tax rate on those profits up to the 15% rate.

The legislation would also implement a domestic minimum top-up tax in Canada. It would impose a top-up tax on a multinational enterprise when its Canadian profits have an effective tax rate below 15%, and this would also be effective in 2024.

Thank you.