Subject to Tax Rule (STTR)

The Subject to Tax Rule (STTR) is a multilateral treaty rule developed under the OECD/G20 Inclusive Framework on BEPS as part of Pillar 2. It is designed primarily for developing countries and grants source states the right to impose a top-up withholding tax on certain intragroup payments when the recipient state subjects those payments to a nominal corporate tax rate below 9% or does not tax them at all.

• Targets intragroup interest, royalties, rental/lease payments, and certain service fees
• Top-up charge calculated as the difference between 9% and the actual tax rate in the recipient state
• Primarily designed for developing countries that do not implement GloBE rules
• Implemented via bilateral tax treaties or the STTR Multilateral Instrument
• Closes gaps that neither the Income Inclusion Rule (IIR) nor the Undertaxed Profits Rule (UTPR) can address

The STTR was developed in response to concerns raised by developing countries during the BEPS project. In July 2021, Inclusive Framework members agreed on a two-pillar solution with the STTR earmarked as a distinct instrument for developing countries. Detailed STTR model rules were published on 17 July 2023 as a model treaty provision with commentary. The OECD/G20 Inclusive Framework finalised the STTR Multilateral Instrument in October 2023, enabling countries to implement the STTR into their existing treaty networks without renegotiating each treaty individually.

The STTR Multilateral Instrument was opened for signature in October 2023 and is designed specifically to lower the administrative burden for developing countries seeking to exercise their STTR rights.

The STTR applies to intragroup payments between associated enterprises that benefit from treaty protections where:

• The recipient state's nominal corporate tax rate is below 9%
• The payment consists of interest, royalties, rental/lease payments, or specified service fees (service fees are subject to an additional mark-up threshold)
• The payment is made between associated enterprises (at least 50% ownership connection)
• The gross amount of covered payments exceeds the materiality threshold of EUR 1 million
• The applicable tax treaty contains an STTR clause

The STTR operates independently of the GloBE rules (IIR/UTPR) and can be applied by source states even where the recipient state has implemented GloBE rules. Payments already subject to sufficiently high withholding tax rates at source are excluded.

• Recipient state's nominal tax rate below 9% for the relevant income
• Payment between associated enterprises with at least 50% ownership connection
• Income must fall within defined payment categories (interest, royalties, rental/lease payments, service fees)
• Gross amount of covered payments must exceed the materiality threshold of EUR 1 million
• STTR clause must be included in the applicable tax treaty (directly or via STTR Multilateral Instrument)
• State must have acceded to the STTR Multilateral Instrument or included the STTR bilaterally in the treaty

3 corrections:
- Typo in history_de: 'Modelllregeln' instead of 'Modellregeln'
- The STTR MLI is a standalone instrument, not a 'protocol'
- official_url returns HTTP 403
6 clarifications.
4 notes.