The Pillar Two Model Rules OECD Commentary: The 15% Global Minimum Tax Technical Guidance
In a recent report, the Organization for Economic Cooperation and Development (OECD) gave its commentary on the rules for the accounting-for-digital-business framework. These rules were finalized late last year in December.
The OECD commentary on the Pillar Two model rules (from March 14, 2022) offers a template where governments can enact legislation addressing common challenges affecting trade today. These rubrics are essential in the digitalization and globalization of economic growth.
The model rules define the base erosion payments under the EU's Anti-Tax Avoidance Directive. With Pillar Two coming into effect in 2023, a 15% minimum tax level will apply to multinational companies making over €750 million every year. This move is estimated to generate an increase of over $150 billion in tax revenues.
The objective of the model rules is to help governments adopt the GloBE rules into their domestic laws and address the following:
- Special minimum tax on international firms believed to be artificially evading U.S. taxes by shifting their profits abroad
- Legislations on acquiring and disposal of subsidiaries
- Rules on how to handle holding structures and administrative provisions, including information filing requirements
- Transitional rules for firms subject to the global minimum tax
There are guidelines on how tax administrations and multinational enterprises will implement the new GloBE rules in the OECD commentary. It defines complex terms in the new rules to avoid confusion. The primary objective of the commentary is to interpret the GloBE rules and facilitate positive outcomes for MNE and tax administration groups. It also illustrates how different parties can use the new rules in creating relevant fact patterns.
But does this call for new consultations? The OECD public consultations are focused on laying out mechanisms into which MNES can adopt the new rules without high compliance costs. The consultations on this vital model rule are open until April 11, 2022.