Global Minimum Tax Act – Observations on assessments and administration

Canada's Global Minimum Tax Act ("GMTA") was enacted on June 20, 2024 to implement Pillar Two of the Organisation for Economic Co-operation and Development's ("OECD") two-pillar proposal for international tax reform.¹ The GMTA, which sets out new minimum tax rules and filing requirements for multinational enterprises with annual revenues above €750 million, is consistent with the OECD's commentary and model rules. The GMTA is effective for fiscal years of qualifying multinational groups that begin on or after December 31, 2023. KPMG's summary of Pillar Two is available in the article BEPS 2.0: Global Minimum Tax.²

The GMTA was introduced as a separate Act, and is not a part of the Income Tax Act or other existing statute. The GMTA includes tax administration provisions that incorporate some existing administration and other provisions contained in the Income Tax Act by reference and provides certain new stand-alone administration provisions.

As the GMTA begins to apply to qualifying multinational groups, it is relevant for taxpayers and practitioners to understand how assessments are issued, objections are made, and appeals are raised under the new legislation.

Assessments

Under the GMTA, the Minister of National Revenue ("Minister") may assess a taxpayer for tax payable and can vary the assessment, reassess the taxpayer, or make any additional assessment that is required.³ An assessment under the GMTA is a separate assessment from an assessment issued under the Income Tax Act or Excise Tax Act.⁴ In particular, it is not a reassessment that nullifies or replaces an assessment made under Part I of the Income Tax Act.

The GMTA incorporates the general anti-avoidance rule ("GAAR") from section 245 of the Income Tax Act to determine amounts under the GMTA.⁵ If the Minister applies GAAR to determine an amount under the GMTA other than an amount payable under the GMTA, the Minister may issue a notice of determination for that amount, and incorporates the relevant provisions of the Income Tax Act for doing so.⁶

Limitation period to assess

Under the GMTA, there is a 7-year assessment period that begins to run on the later of two dates: the day when the return for the liability at issue was filed and the day which the Minister received the GloBE information return ("GIR").⁷ The exceptions to the limitation period under the GMTA are similar to those in the Income Tax Act, such as for misrepresentations attributable to neglect, carelessness or willful default.⁸

Objections

Consistent with the rules found in the Income Tax Act and Excise Tax Act, a taxpayer has 90 days to object to an assessment under the GMTA and, if this deadline is missed, an extension may be requested from the Minister within one year of the normal deadline for objecting.⁹ Due to the GMTA's application to qualifying multinational groups, all objections under the GMTA require a similar level of detail as large corporations under the Income Tax Act.¹⁰ While a dispute is ongoing, the Minister is generally not permitted to take collection action after service of a notice of objection or a notice of appeal to the Tax Court of Canada.¹¹ However, the Minister may collect up to 50% of any unpaid amount that exceeds $1 million in any event.¹²

Similar to the Excise Tax Act (and unlike the Income Tax Act), taxpayers objecting to a GMTA assessment may ask the Minister to waive reconsideration and confirm the assessment and taxpayers must otherwise wait 180 days after filing an objection before proceeding to the Tax Court of Canada.¹³

Appeals to the Tax Court of Canada

The framework of the GMTA is similar to the Income Tax Act and Excise Tax Act with respect to appeals to the Tax Court. A taxpayer who has objected to an assessment may appeal to the Tax Court to have the assessment varied, vacated, or to have a reassessment made.14 Additionally, the GMTA provides that a taxpayer may submit a reference to the Tax Court on a question arising from an assessment under the GMTA.¹⁵

Under the GMTA, the Minister may also apply for a determination of a common question. The GMTA contains language similar to the Excise Tax Act for such applications.¹⁶

Timing of payment receipt

Similar to payments made by a corporation under the Income Tax Act,¹⁷ an amount that is owed by a taxpayer under the GMTA is not considered to have been paid until it is received by the Receiver General of Canada.¹⁸

Penalties

Failures to file a GIR, or submitting an insufficiently complete GIR will result in penalties. Repeated failures to file or false statements in a return may result in additional penalties. The CRA may also apply the GAAR penalty to abusive transactions designed to avoid tax payable under the GMTA. Each entity in a qualifying multinational group that is located in Canada will be jointly and severally liable for any penalties imposed by the Minister.19

The GMTA also contains criminal offense provisions similar to subsection 238(1) of the Income Tax Act providing for potential fines, imprisonment, or both.20 A due diligence defence applies to these offences.²¹

Interest

As a consequence of enacting the GMTA, the Income Tax Act was amended to provide that amounts paid or payable as interest under the GMTA are not deductible for income tax purposes.²²

Discretionary relief

The GMTA allows a taxpayer to apply to have the Minister waive or cancel interest and/or penalties payable.²³ This taxpayer relief is discretionary, meaning the Minister is not required to waive or cancel interest or penalties unless the Minister considers it appropriate to do so. At this time, the Minister has not issued administrative guidance for a Voluntary Disclosures Program relating to the GMTA.

The GMTA introduces new compliance and tax obligations for qualifying multinational groups. Taxpayers should be aware of their rights and obligations in addressing assessments under the GMTA.

For further information on reassessments, objections, and appeals under the GMTA please contact the KPMG Law Tax Litigation and Disputes Resolution team, including Salvatore Mirandola and Kristen Duerhammer. Thank you to Simon Pereira for excellent research and contributions to this commentary.

^{1. The Global Minimum Tax Act ("GMTA"), as enacted, implements two new taxes: an income inclusion rule (IIR); and a domestic minimum top-up tax. The OECD "GloBE Rules" also contemplate the adoption of a "UTPR." Draft legislation to implement a UTPR was released by the Department of Finance on August 12, 2024. This commentary is based on the GMTA, enacted as of August 30, 2024.}

^{2. BEPS 2.0: Global minimum tax, KPMG in Canada, August 30, 2023.}

^{3. Global Minimum Tax Act (GMTA), Government of Canada, s 82(1).}

^{4. GMTA, Division 8.}

^{5. GMTA, s 54.}

^{6. GMTA, s 82(2).}

^{7. GMTA, s 85(1).}

^{8. GMTA, s 85(3).}

^{9. GMTA, s 87(1), 88(1), 88(7).}

^{10. See Tax Challenges Arising from Digitalisation of the Economy – Global Anti-Base Erosion Model Rules (Pillar Two): Inclusive Framework on BEPS, OECD/G20 Base Erosion and Profit Shifting Project, OECD Publishing, OECD, 2021} 

^{11. GMTA, ss 125(2) and (3).}

^{12. GMTA, s 125(6).}

^{13. GMTA, ss 87(9) and 90.}

^{14. GMTA, s 90.}

^{15. GMTA, s 95.}

^{16. GMTA, s 96.}

^{17. Income Tax Act, s 248(7)(b)(ii).}

^{18. GMTA, s 136.}

^{19. GMTA, s 81(1), Division 11.}

^{20. GMTA, ss 106, 111.}

^{21. GMTA, s 111.}

^{22. Income Tax Act, s 18(1)(t)(vii).}

^{23. GMTA, s 72.}