Latest developments regarding Global Anti-Base Erosion Model Rules (Pillar Two)
OECD Developments
In 2021, the Organization for Economic Co-operation and Development (OECD) approved Global Anti-Base Erosion Model Rules (GloBE rules) (Pillar Two) as part of the OECD/G20 Base Erosion and Profit Shifting (BEPS) Project to address the tax challenges arising from the digitalization of the economy. It is noteworthy that 130+ countries became members of the OECD/G20 Inclusive Framework (IF) on BEPS to implement the Pillar Two.
The GloBE rules will ensure the multinational enterprise (MNE) groups pay their fare shares of tax in the jurisdictions where the economic activities generating the profits are performed by setting the effective minimum tax rate of 15%. In other words, the GloBE rules require the MNE with the consolidated revenues over € 750 million to top up their tax amount if they are paying less than the effective tax rate of 15% in a particular jurisdiction on their local income.
Even though the Inclusive Framework (IF) jurisdictions have agreed to implement the global anti-base erosion (GloBE) rules via a common approach, there is still a possibility in terms of the differences in interpretations or applications of the GloBE rules from the perspectives of the bilateral tax treaties as well as the local jurisdictions laws since the local authorities have the right to implement the GloBE rules based on the laws and regulations of the local jurisdictions as long as the agreed outcomes are achived.
For the purpose of mitigating the risks of different interpretations as well as imposing the tax certainty for the GloBE rules among IF jurisdictions, the OECD has issued an Administrative Guidance on 2 February 2023, which provides guidance to tax administrations for application of GloBE rules while ensuring coordinated outcomes. The Administrative Guidance addresses a wide range of issues identified by the IF jurisdictions. (e.g. clarifications on the definition of “Excluded Entity”, guidance on the application of Qualified Domestic Minimum Top-up Taxes).
The OECD has also held virtual public consultation meeting on 16 March 2023 to discuss issues regarding the compliance and tax certainty aspects of global minimum tax.
One of the main issues addressed during the meeting is the development of a standardized global anti-base erosion (GloBE) Information Return (GIR) with the purpose to facilitate and assess compliance, administration and transparency of the GloBE tax liabilities and tax calculations of the MNE Group in a more efficient and regulated manner.
Basically, the GIR should cover four primary information such as general information about the MNG Group and the Filing Constituent Entity, corporate structure, Effective Tax Rate (ETR) computation and Top-up Tax computation as well as Top-up Tax allocation and attribution. Even though the intention of standardizing GIR is to ensure proper compliance with the GloBE Rules while lessening the collection of necessary information from the MNE Groups, there is still a question of whether there may be additional administrative burden for the MNG Groups as the obligation to prepare GlR is a separate requirement in addition to the jurisdiction-based tax returns and compliance requirements.
Another issue addressed during the meeting is providing tax certainty with respect to the GloBE rules by exploring mechanisms for dispute prevention and dispute resolutions.
With the comments and feedbacks received from the stakeholders during this public consultation meeting, the OECD will issue further updates on the GIR as well as the Administrative Guidance.
EU Developments
In December 2022, the Council of the European Union (EU Council) issued the Council Directive in line with the content and structure of the GloBE rules to make sure that the MNE and large-scale domestic groups in the Union maintain a global minimum level of taxation of 15% in the respective jurisdiction within the EU.
The authorities in Hungary have already started to work on the implementation of the EU Directive which should be adopted by end of 2023 in Hungary.