Pillar Two and the Existing Corporate Tax Regime: Are Amendments Necessary?

This note examines the implications of the OECD’s Global Anti-Base Erosion (GloBE) Rules, part of Pillar Two, on Bulgaria’s corporate tax regime, which has historically maintained a low 10% tax rate. While Bulgaria has embraced the GloBE Rules, introducing a domestic top-up tax together with the income inclusion rule (IIR) and the undertaxed profits rule (UTPR), potential conflicts arise between these new regulations and existing tax benefits, particularly concerning dividend income and the attractive capital gains exemption on public stock and government bonds. The note highlights the unintended consequences of these misalignments and the potential loss of Bulgaria’s competitive tax advantages. It further explores the available options before policymakers on potentially tackling the issue or accepting the new status quo. Ultimately, the article highlights the need for jurisdictions to adapt their corporate tax strategies to retain and possibly further attract foreign investment.