INTERNATIONAL TAX PLAZA - The OECD Global Anti-Base Erosion (GloBE) Model Rules under Pillar Two are available

On December 17, 2021 we already informed you that the evening of the day before Pascal Saint-Amans finally broke silence and announced that The Global Anti-Base Erosion (GloBE) Model Rules under Pillar Two would be released on Monday December 20, 2021.

The OECD kept word, the GloBE rules under Pillar Two are now available here.

In early 2022, the OECD will release the Commentary relating to the model rules and address co-existence with the US Global Intangible Low-Taxed Income (GILTI) rules. This will be followed by the development of an implementation framework focused on administrative, compliance and co-ordination issues relating to Pillar Two. The Inclusive Framework is also developing the model provision for a Subject to Tax Rule, together with a multilateral instrument for its implementation, to be released in the early part of 2022. A public consultation event on the implementation framework will be held in February 2022 and on the Subject to Tax Rule in March 2022.

The GloBE Rules under Pillar Two are meant to assist in the implementation of a landmark reform to the international tax system, which will ensure Multinational Enterprises (MNEs) will be subject to a minimum 15% tax rate from 2023.

The Pillar Two model rules provide governments a precise template for taking forward the two-pillar solution to address the tax challenges arising from digitalisation and globalisation of the economy agreed in October 2021 by 137 countries and jurisdictions under the OECD/G20 Inclusive Framework on BEPS.

The rules define the scope and set out the mechanism for the so-called Global Anti-Base Erosion (GloBE) rules under Pillar Two, which will introduce a global minimum corporate tax rate set at 15%. The minimum tax will apply to MNEs with revenue above EUR 750 million and is estimated to generate around USD 150 billion in additional global tax revenues annually.

The GloBE rules provide for a co-ordinated system of taxation intended to ensure large MNE groups pay this minimum level of tax on income arising in each of the jurisdictions in which they operate. The rules create a “top-up tax” to be applied on profits in any jurisdiction whenever the effective tax rate, determined on a jurisdictional basis, is below the minimum 15% rate.

The new Pillar Two model rules will assist countries to bring the GloBE rules into domestic legislation in 2022. They provide for a co-ordinated system of interlocking rules that:

· define the MNEs within the scope of the minimum tax;

· set out a mechanism for calculating an MNE’s effective tax rate on a jurisdictional basis, and for determining the amount of top-up tax payable under the rules; and

· impose the top-up tax on a member of the MNE group in accordance with an agreed rule order.

The Pillar Two model rules also address the treatment of acquisitions and disposals of group members and include specific rules to deal with particular holding structures and tax neutrality regimes. Finally, the rules address administrative aspects, including information filing requirements, and provide for transitional rules for MNEs that become subject to the global minimum tax.

The OECD also released a so-called FAQs document, in which it answers 16 questions regarding the GloBE rules of Pillar 2. The FAQs document you can find here.

A high-level description (“The Pillar Two Rules in a Nutshell”) of how the GloBE rules under Pillar Two work you can find here.

Overview of the Key Operating Provisions of the GloBE Rules under Pillar Two a made by the OECD you can find here.

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