Fernway DiarySM

Feb 22, 2023

The OECD/G20 Inclusive Framework on BEPS (Base Erosion and Profit Shifting) released technical guidance on the implementation of the Pillar Two global minimum tax on multinational corporations on February 2, 2023. Per the Organization for Economic Coordination and Development’s announcement, the new guidance is intended to “ensure co‑ordinated outcomes and greater certainty for businesses as they move to apply the global minimum corporate tax rules from the beginning of 2024.” The release of the Administrative Guidance on the Global Anti-Base Erosion Model Rules, together with the release in December 2022 of the guidance on safe harbors and penalty relief, the public consultation on the GloBe information return, and the public consultation on tax certainty for the GloBe rules, finalizes the implementation framework on the Two-Pillar Solution Address the Tax Challenges Arising from the Digitalisation of the Economy.

In October 2021, members of the Inclusive Framework agreed to a coordinated system of global anti-base erosion rules designed to ensure that large multinational corporations would pay a minimum level of tax on their income from each jurisdiction in which they operate. The GloBE Model Rules were approved and released by the Inclusive Framework in December 2021, followed by the Commentary to the GloBE Model Rules in March 2022. The commentary clarified the interpretation and operation of the provisions in the model rules, as well as providing examples to illustrate how the rules applied to specific fact patterns, with the goal of promoting a consistent interpretation of the rules and to facilitate coordinated outcomes. However, that commentary did not provide guidance on every aspect of the rules; in fact, it identified issues requiring further consideration and development as part of the framework.

The guidance released this month addresses a wide range of issues identified as most in need of immediate clarification and simplification for stakeholders by Inclusive Framework members. These include guidance on specific issues such as the recognition of the US minimum tax (Global Intangible Low-Taxed Income, or GILTI) under the GloBE Rules and the design of Qualified Domestic Minimum Top-Up Taxes (QDMTTs), as well as general guidance on the scope, operation, and transitional elements of the GloBE Rules. Grace Perez-Navarro, Director of the OECD Centre for Tax Policy and Administration noted that while the release of the guidance marked the final piece of the initial creation of the GloBE Rules, “we will continue, over the coming months, to work hard to ensure that the rules are implemented in a co-ordinated and administrable manner.  This will include listening to stakeholders on how the operation of the rules can be further refined to reduce compliance costs and achieve better tax certainty for business.”

The new guidance will be incorporated into a revised version of the Commentary, which will replace the original March 2022 version, to be released later this year. As noted in the executive summary of the guidance, further administrative guidance priorities will be considered on an ongoing basis to address issues as they arise, with the aim of releasing guidance as it is agreed upon throughout the year to enable Inclusive Framework members to meet their implementation schedule.

The US Department of the Treasury welcomed the new guidance, stating that it “provides greater certainty for issues of top concern for U.S. taxpayers.” Among the issues cited in their statement were protection of the Low-Income Housing Tax Credit (LIHTC) and green tax credits, clear and administrable treatment of taxes paid under the existing U.S. GILTI global minimum tax regime, and a consensus statement by all Inclusive Framework members affirming the intentional design of Pillar Two to make top-up tax imposed in accordance with those rules compatible with common tax treaty provisions.

Companies potentially affected by the global minimum tax should continue to follow developments from relevant jurisdictions, as countries that are part of the agreement move to adopt domestic legislation in line with the latest guidance. In addition, consultation with an experienced tax professional can help identify potential tax liabilities and inform tax planning.

For more information, please contact your US tax advisory team at youradvisor@fernwaysolutions.com or visit us at www.fernwaysolutions.com.

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