The OECD has also published its much-awaited commentary to the global base erosion (GloBE) model rules (pillar two), providing more than 220 pages of guidance on the interpretation and application of the rules for tax administrations and taxpayers, setting out the scope of the model GloBE rules (i.e. those MNEs which meet the revenue threshold, including cases of mergers and demergers), and covering the following:
the ‘operating mechanics’ for the primary income inclusion rule (IIR) and the undertaxed payments rule (UTPR);
calculating a constituent entity’s GloBE income or loss;
determining the amount of covered taxes for each entity; and
calculating the amount of top-up tax.
Alongside the commentary, the OECD has also published almost 50 pages of examples illustrating the application of the rules. The sub-headings in the examples and the commentary refer to the relevant article number in the rules themselves, for ease of reference.
In addition, the OECD is consulting on issues to be addressed as part of the GloBE implementation framework, focusing on mechanisms to ensure tax administrations and MNEs can implement and apply the GloBE rules in a consistent and coordinated manner while minimising compliance costs. Key questions include:
Do you see a need for further administrative guidance as part of the implementation framework?
Do you have any views on how the design of the information collection, filing obligations and record keeping requirements under GloBE could be designed to maximise efficiency, accuracy and verifiability of information reporting while taking into account compliance costs?
Do you have any suggestions on measures to reduce compliance costs for MNEs including through simplifications and the use of safe harbours?
Do you have views on mechanisms to maximise rule coordination, increase tax certainty and avoid the risk of double taxation?
The consultation closes on Friday 11 April 2022, and a virtual public consultation meeting will be held at the end of April 2022.
Meanwhile, the Council of the EU has issued a compromise text on the directive implementing pillar two, which was presented in December 2021 by the European Commission. This sets out a new transitional approach for member states in which no more than ten ultimate parent entities of groups in scope of this directive are located may elect not to apply the IIR and the UTPR ‘for each fiscal year beginning as from 31 December 2023 to 31 December [2025]’. The compromise text also extends the general timeframe for the transposition of the directive into national law to 31 December 2023, with the rules to then apply for fiscal years beginning from 31 December 2024.
Alison Lobb, partner at Deloitte, observed: ‘This is the first formal indication that the EU timetable for implementation is slipping by a year. Other countries outside the EU are expected to follow suit, although it is not clear whether all governments will be prepared to delay.’
The French presidency’s new compromise proposal was not, however, supported by four member states (Sweden, Poland, Malta, and Estonia).
Nonetheless, French Finance Minister Bruno Le Maire said he was confident that agreement would be reached at the next ECOFIN meeting on 5 April 2022. ‘I’ve been advocating [a minimum tax rate] for five years now; I’ve learned to be patient,’ he said.
Home >Articles > Pillar two: OECD issues commentary on GloBE rules and consults on implementation issues, while EU pushes back its implementation timetable
Pillar two: OECD issues commentary on GloBE rules and consults on implementation issues, while EU pushes back its implementation timetable
The OECD has also published its much-awaited commentary to the global base erosion (GloBE) model rules (pillar two), providing more than 220 pages of guidance on the interpretation and application of the rules for tax administrations and taxpayers, setting out the scope of the model GloBE rules (i.e. those MNEs which meet the revenue threshold, including cases of mergers and demergers), and covering the following:
the ‘operating mechanics’ for the primary income inclusion rule (IIR) and the undertaxed payments rule (UTPR);
calculating a constituent entity’s GloBE income or loss;
determining the amount of covered taxes for each entity; and
calculating the amount of top-up tax.
Alongside the commentary, the OECD has also published almost 50 pages of examples illustrating the application of the rules. The sub-headings in the examples and the commentary refer to the relevant article number in the rules themselves, for ease of reference.
In addition, the OECD is consulting on issues to be addressed as part of the GloBE implementation framework, focusing on mechanisms to ensure tax administrations and MNEs can implement and apply the GloBE rules in a consistent and coordinated manner while minimising compliance costs. Key questions include:
Do you see a need for further administrative guidance as part of the implementation framework?
Do you have any views on how the design of the information collection, filing obligations and record keeping requirements under GloBE could be designed to maximise efficiency, accuracy and verifiability of information reporting while taking into account compliance costs?
Do you have any suggestions on measures to reduce compliance costs for MNEs including through simplifications and the use of safe harbours?
Do you have views on mechanisms to maximise rule coordination, increase tax certainty and avoid the risk of double taxation?
The consultation closes on Friday 11 April 2022, and a virtual public consultation meeting will be held at the end of April 2022.
Meanwhile, the Council of the EU has issued a compromise text on the directive implementing pillar two, which was presented in December 2021 by the European Commission. This sets out a new transitional approach for member states in which no more than ten ultimate parent entities of groups in scope of this directive are located may elect not to apply the IIR and the UTPR ‘for each fiscal year beginning as from 31 December 2023 to 31 December [2025]’. The compromise text also extends the general timeframe for the transposition of the directive into national law to 31 December 2023, with the rules to then apply for fiscal years beginning from 31 December 2024.
Alison Lobb, partner at Deloitte, observed: ‘This is the first formal indication that the EU timetable for implementation is slipping by a year. Other countries outside the EU are expected to follow suit, although it is not clear whether all governments will be prepared to delay.’
The French presidency’s new compromise proposal was not, however, supported by four member states (Sweden, Poland, Malta, and Estonia).
Nonetheless, French Finance Minister Bruno Le Maire said he was confident that agreement would be reached at the next ECOFIN meeting on 5 April 2022. ‘I’ve been advocating [a minimum tax rate] for five years now; I’ve learned to be patient,’ he said.
