The “subject-to-tax rule" (STTR) developed by the OECD/G20 Inclusive Framework on BEPS (OECD IF) is an integral part of Pillar II and was prepared for achieving consent by developing member states on the Pillar II project. Developing IF member states can make a binding request for including a STTR in their tax treaties with residence jurisdictions that apply a nominal tax rate below 9 % on intra-group interest, royalties, service fees, and a defined set of other payments. If the tax treaty limits the rate at which the jurisdiction where the income arises can tax the income, the STTR allows that jurisdiction to tax the defined categories of income at a rate up to the difference between 9 % and the nominal corporate income tax rate of the residence jurisdiction. The STTR is subject to certain exclusions, a materiality threshold and a mark-up threshold and shall be administered through an ex-post annualized charge. To facilitate the implementation of the STTR the OECD IF develops a Multilateral Instrument (MLI) together with an explanatory statement that will be open for signature from October 2nd, 2023. OECD IF members can either implement the STTR by signing the MLI or bilaterally amend their treaties to include the STTR when requested by the developing OECD IF member. Stefan Bendlinger gives an overview of the key components of the STTR model treaty provision and the corresponding commentary, which was delivered by the OECD IF on July 17th, 2023.
