On 17 July 2023 the OECD Inclusive Framework (IF) released a report with model treaty text to give effect to the Subject-to-Tax-Rule (STTR), together with an accompanying commentary explaining the purpose and operation of the STTR. The OECD Secretariat also published a summary of the STTR, titled “The Subject to Tax Rule in a Nutshell,” to assist in understanding the STTR model provisions.
The STTR is a treaty-based rule that allows source countries to impose an additional tax liability on certain intragroup payments in case the recipient is subject to a nominal corporate tax rate of less than 9% (adjusted for tax base reductions such as tax exemptions and tax credits). A wide range of payments between connected persons
are targeted by the rule, including interest, royalties and service fees, with the notable exclusion of dividends. The STTR takes priority over the GloBE Rules and is creditable as a covered tax. Its implementation by countries is planned to start in October 2023 via a multilateral instrument (to allow for multiple bilateral tax treaties to be changed at the same time). IF members have committed to adopt the STTR when requested by other IF members that are developing countries.