OECD issues additional guidance on Pillar Two implementation
On 18 December 2023, the Organisation for Economic Cooperation and Development (OECD) issued additional technical guidance (December 2023 guidance) regarding the implementation of the global anti-base erosion model rules (GloBE rules) following the first two sets of guidance issued respectively in February and July 2023. The new guidance will be incorporated into a revised version of the commentary to be released during 2024 and will replace the original version issued in March 2022.
To recap, in October 2021, the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) agreed on reforming the international tax framework in response to so called “digitalisation” challenges. The solution, in the form of the GloBE rules, aims to ensure large multinational enterprise (MNE) groups pay a minimum level of tax of 15 per cent on excess profits in each jurisdiction they operate.
One of the key aspects of these rules is ensuring consistent implementation in all relevant jurisdictions to achieve the agreed outcomes, hence the importance of the technical guidance. The guidance issued so far covers both interpretive and operational aspects, addressing consistent interpretation and administrative procedures, and is taken into account for implementation. In Luxembourg, for example, a new draft of the Pillar Two legislative bill has been introduced following the issuance of the July guidance, however, the law adopted in December 2023 will not now take into account this latest guidance which may give rise to amendments of the law in the near future.
The December 2023 guidance clarifies a number of key areas designed to ease the transition of MNE groups into the new regime provided for under the GloBE rules. It provides welcome clarity on:
- Details on purchase price accounting adjustments in qualified financial statements
- The definition of revenues to determine if an MNE is subject to the GloBE rules or not (to analyse if the €750 million consolidated revenue threshold is reached or not)
- Details on the transitional country-by-country reporting (CbCR) safe harbour relating to Hybrid Arbitrage Arrangements steaming from differences between tax and financing accounting treatment
- Allocation of blended controlled foreign corporation (CFC) taxes
- Transitional filing deadlines for MNEs with shorter fiscal years
Further agreed administrative guidance will be released in response to stakeholder requests and to counter aggressive tax planning. Simplifications on compliance, including guidance expected in the first half of 2024, will cover deferred tax liability recapture rules and the allocation of deferred taxes related to cross-border taxes.
The Inclusive Framework emphasises a robust peer review process, ongoing work on the administrative framework, and dispute resolution mechanisms for enhanced tax certainty.
Additionally, a statement was issued, regarding Pillar One, providing an updated timeline for concluding the text of the Multilateral Convention (MLC), under Pillar One which aims to implement the coordinated reallocation of taxing rights over the profits of the world's largest and most profitable companies. The statement underscores the commitment of Inclusive Framework delegates to resolve outstanding issues, achieving a consensus-based solution, and swiftly finalising the MLC by 31 March 2024.
OECD’s brief statement can be found here.
Our blog post on OECD’s administrative guidance for the pillar two GloBE Rules issued in February 2023, can be accessed here.