The OECD Two-Pillar Solution: Pillar Two Highlights and a Discussion of US and EU Reaction
The OECD and member countries of the OECD/G20 Inclusive Framework (“Inclusive Framework”) on Base Erosion and Profit Shifting (“BEPS”) have been working for several years on developing standards for international tax rules. The goal of these efforts is to help countries combat tax evasion and corporate tax avoidance strategies that exploit gaps and mismatches in international tax laws. In 2015, the BEPS project agreed to implementation of 15 Actions that have been successful in many areas. However, a key area that has not been adequately addressed is the effects of digitalization and globalization on the global economy, which continues to result in tax avoidance by large multinational enterprises (“MNEs”) that are able to shift profits to low-tax jurisdictions and avoid paying corporate income tax in some jurisdictions where they earn significant income.
The OECD began work on a two pillar solution to address the challenges arising from the digitalization of the economy in 2020, and that work is now reaching its conclusion and implementation. Proposed rules are under review with respect to both Pillars One and Two with public consultations taking place.
This True Insight is the third in a series of alerts related to our review of the OECD project. For prior discussions of this issue, please see our True Alerts here and here. This True Insight, which focuses on Pillar Two, includes a summary of the recently released OECD guidance, a status report on European Union (“EU”) activity on Pillar Two, and a discussion of issues related to US actions on the OECD negotiations and changes to US tax laws.
A future True Insight will focus on issues related to Pillar One including materials recently released by the OECD. On February 4, 2022, the OECD released its initial “Draft Rules for Nexus and Revenue Sourcing under Pillar One Amount A.” On February 18, 2022, the OECD issued a new set of proposed rules for “Tax Base Determinations under Amount A of Pillar One.”
On January 31, 2020, the OECD released a “Statement by the OECD/G20 Inclusive Framework on BEPS on the Two-Pillar Approach to Address the Tax Challenges Arising from the Digitalization of the Economy” that outlined a two-pillar approach (“Two-Pillar Solution”) that the Inclusive Framework adopted as the basis for their work program. Pillar One established new nexus and profit allocation rules and Pillar Two established a minimum global tax of “at least 15%,” both of which target large MNEs.
On October 12, 2020, the OECD Inclusive Framework released Blueprints for Pillars One and Two, which were intended to provide the foundation for a global agreement to ensure that all businesses pay their fair share of tax where they have activities and earn profits.
The Pillar One nexus and profit allocation rules will be implemented through a new multilateral instrument (“MLI”) which will be available for signature in 2022 and is scheduled to come into effect in 2023. The implementation plan contemplates that Pillar Two should be brought into domestic country law in 2022 and become effective in 2023, although certain transitional rules may be necessary.
Status and Timeline of the OECD Negotiations
In July 2021, 134 countries and jurisdictions joined the “Statement on the Two-Pillar Solution to Address the Tax Challenges Arising from the Digitalization of the Economy,” which agreed on a framework for the project, but with certain key parameters open for decision by October 2021. With respect to Pillar Two, the global minimum tax rate was described as “at least 15%.”
In October 2021, an OECD Statement (“October Statement”) was issued that stated that 136 countries and jurisdictions (with the total to date at 137 out of 140) of the Inclusive Framework had joined the Two-Pillar Solution establishing a new framework for international tax and had agreed to a Detailed Implementation Plan (“Implementation Plan”) that outlines implementation of the new rules by 2023.
The October Statement set the global minimum tax rate at 15%. The Two-Pillar Solution provides for the removal of existing unilateral measures and the prevention of new measures, such as Digital Services Taxes (“DSTs”) and other similar rules.
Once the October Statement and agreement was in place along with the Detailed Implementation Plan, the Inclusive Framework was positioned to move on to assisting countries with implementation in domestic law aligned with Pillar Two rules.
The Implementation Plan provided for a clear and ambitious timeline to ensure implementation from 2023 into the future. Pillar Two required the development of model rules to give effect to the minimum corporate tax as well as a model treaty provision to implement the “Subject to Tax Rule” (“STTR”). A multilateral instrument is scheduled to be released by mid-2022 to facilitate the implementation of this rule in bilateral treaties.
On December 20, 2021, the OECD issued its Global Anti-Base Erosion (GloBE) Model Rules (“Model Rules”) under its Pillar Two proposal to impose a 15% minimum tax on a jurisdictional basis. The Model Rules define the scope and mechanics of the global minimum tax rules (discussed further below).
On March 14, 2022, the OECD released the Commentary to the Pillar Two Model Rules. The OECD stated that the Commentary is intended to provide corporations and jurisdictions with “detailed and comprehensive technical guidance on the operation and intended outcomes under the rules and clarifies the meaning of certain terms. It also illustrates the application of the rules to various fact patterns.” Together with the Commentary, the OECD also published a separate document with illustrative examples of the application of the Model Rules.
They also launched a public consultation on the GloBE Implementation Framework. Stakeholder input is requested on various issues related to the administration, operation, compliance, and rule coordination of the Model Rules with comments that were due by April 11, 2022. A public consultation meeting will be held on April 25, 2022.
The Proposed Rules – Pillar Two
Pillar Two establishes a minimum global tax of 15% for large MNEs. Generally, a global minimum tax is a tax regime that is established by international agreement that would allow participating countries to impose a specific minimum tax rate on the income of companies subject to tax in that country. A standard tax rate is applied to a defined corporate income base worldwide.
Defining the tax base on which the global minimum tax would be applied is key. Tax laws in individual countries vary in design and complexity, which create different income tax bases in each jurisdiction, so a standard definition of the tax base is important.
Each country would be entitled to the revenue from the global minimum tax after they incorporate the rate and rules into the country’s tax system. Governments would continue to be allowed to set their own corporate tax rates, but if companies are able to pay lower rates in a particular country, their home country could increase their taxes to the global minimum tax, so that the advantage of profit shifting would be eliminated.
Pillar Two addresses tax competition by putting a floor on corporate income tax rates through the introduction of a global minimum corporate tax rate of 15%, which countries can use to protect their tax. The October Statement says that “Pillar Two does not eliminate tax competition, but it does set multilaterally agreed limitations on it.” Governments globally agree to allow additional taxes on the foreign profits of MNEs headquartered in their jurisdictions at least to the agreed minimum rate of 15%.
The October Statement explained that tax incentives provided to spur substantial economic activity will be accommodated through a carve-out. Pillar Two also protects the right of developing countries to tax certain base-eroding payments (such as interest and royalties) when they are not taxed up to the minimum rate of 9%, through an STTR.
Overall Design: Pillar Two consists of:
- Two interlocking domestic rules, which together are called the Global anti-Base Erosion Rules (GloBE rules):
- An Income Inclusion Rule (IIR), which imposes a top-up tax on a parent entity in respect of the low taxed income of a constituent entity; and
- An Undertaxed Payment Rule (UTPR), which denies deductions or requires an equivalent adjustment to the extent the low tax income of a constituent entity is not subject to tax under an IIR; and
- A treaty-based rule, called the “Subject to Tax Rule” (STTR), which allows source jurisdictions to impose limited source taxation on certain related party payments subject to tax below a minimum rate. The STTR will be creditable as a covered tax under the GloBE rules.
Scope: The proposed rules would apply to MNEs that meet the €750 million threshold as determined under BEPS Action 13, which is country-by-country reporting. Countries are free to apply the IIR to MNEs headquartered in the country even if they do not meet the threshold.
Status: Inclusive Framework members are not required to adopt the GloBE rules, but if they do there are two requirements:
- They must implement and administer the rules in a way that is consistent with the outcomes provided for under Pillar Two, including in guidance agreed to by the Inclusive Framework;
- They must accept the application of the GloBE rules applied by another member of the Inclusive Framework in respect of MNEs operating in its jurisdiction, including agreement as to order and application of rules and agreed upon safe harbors.
ETR Calculation: The GloBE rules operate to impose a top-up tax using an effective tax rate test that is calculated on a jurisdictional basis. It uses a common definition of covered taxes and tax base determined by reference to financial accounting income with agreed adjustments consistent with the tax policy objectives of Pillar Two as well as mechanisms to address timing differences.
How the IIR works: The IIR is a top-up tax. If the country where the Ultimate Parent Entity (“UPE”) is located has a qualifying IIR (i.e., at least 15%), then if a subsidiary of an MNE is subject to a lower rate of tax in a country where it does business, the UPE’s country collects the top-up tax to ensure that the 15% minimum tax is paid.
How the UTPR works: The UTPR is a backstop to the IIR and is intended to persuade all countries to adopt an IIR. For MNE group’s whose ETR is less than 15% after application of the IIR, the UTPR kicks in to deny deductions or require other adjustments such that all other countries that participate in Pillar Two where the MNE has a presence would receive an allocation of the additional taxes.
Carve-outs: The GloBE rules provide for a formulaic substance carve-out that will exclude an amount of income that is 5% of the carrying value of tangible assets and payroll. Over a transition period of 10 years, the amount of income excluded will be 8% of the carrying value of tangible assets and 10% of payroll, declining annually. The GloBE rules also provide for a de minimis exclusion for those jurisdictions where the MNE has revenues of less than € 10 million and profits of less than € 1 million.
Subject to Tax Rule: Inclusive Framework members agree that the STTR is an integral part of achieving a consensus on Pillar Two for developing countries. Members that apply nominal corporate income tax rates below the STTR minimum rate to interest, royalties, and a defined set of other payments would implement the STTR into their bilateral treaties with developing Inclusive Framework members when requested to do so. The taxing right will be limited to the difference between the minimum rate and the tax rate on the payment. The minimum rate for the STTR will be 9%.
Implementation Plan: Pillar Two is scheduled to be brought into law in 2022 with the IIR to be effective in 2023 and the UTPR coming into effect in 2024. Countries and jurisdictions, however, will determine the timeframe for their work in this area. The OECD has stated that it is critically important for key governments to move quickly to enact rules through domestic legislatures, because the tax system will become destabilized for all the MNEs covered if they fail to do so, and governments could very well move back toward unilateral measures such as DSTs.
Implementation of Pillar Two requires:
- model rules to define scope and mechanics for the GloBE rules,
- a model treaty provision to give effect to the STTR,
- a MLI for implementation of the STTR in relevant bilateral treaties to be developed by mid-2022, and
- an implementation framework to facilitate coordinated implementation of the Globe rules.
Pillar Two Model Rules and Commentary
On December 20, 2021, the OECD published the Model Rules under its Pillar Two proposal to impose a 15% minimum tax on a jurisdictional basis. The Model Rules provide governments a template for advancing the Two-Pillar Solution. The key elements were agreed upon and described in the October Statement.
The Model Rules set out a coordinated system of interlocking rules that:
- Define the MNEs within the scope of the minimum tax;
- Set out mechanisms for calculating an MNE’s ETR 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 Model Rules also address:
- The treatment of acquisitions and disposals of group members with specific rules to deal with particular holding structures and tax neutrality regimes;
- Administrative issues, including information filing requirements; and
- Transition rules for MNEs that become subject to the global minimum tax.
On March 14, 2022, the OECD released the Commentary to the GloBE Rules, (“Commentary”) which provides detailed and comprehensive technical guidance on the operation and intended outcomes under the Model Rules. The Commentary, which has been approved by the Inclusive Framework, explains the intended outcomes under the Model Rules and clarifies the meaning of certain terms.
The Commentary is intended to promote a consistent and common interpretation of the GloBE Rules that will facilitate coordinated outcomes for both tax administrations and MNE Groups. The OECD release stated that “with the completion of the technical work on the Model Rules and Commentary, Inclusive Framework members now have all the tools they need to begin implementing the rules.” The OECD Secretariat also published examples that illustrate how the Model Rules apply to various fact patterns.
The Commentary guidance is divided into ten chapters covering the following key areas:
- Scope of the GloBE rules;
- Operating mechanics for the IIR and the UTPR;
- Mechanics for calculating a Constituent Entity’s GloBE Income or Loss;
- Mechanics for determining the amount of Covered Taxes on the GloBE income of each Constituent Entity;
- Steps to be taken in determining the amount of Top-up Tax of each Low-Taxed Constituent Entity (LTCE);
- Consequences of a transfer of part or all of the Controlling Interests, or transfer of assets and liabilities, of a target Constituent Entity;
- Specific rules that apply to certain tax neutrality and distribution regimes in order to avoid unintended outcomes under the GloBE rules;
- Certain provisions in respect of the administration of the GloBE rules, including information that must be filed by the relevant Constituent Entities to demonstrate compliance with the GloBE rules under Article 8.1;
- Transition rules, including rules for taking into account losses and other tax attributes that arose prior to the application of the GloBE rules; and
- Definitions of terms under in the GloBE rules, and rules in Article 10.2 to define Flow-through Entities, Tax Transparent Entities, Reverse Hybrid Entities, and Hybrid Entities.
TPC Observation: Some key issues were either not addressed by the Commentary or present ambiguity and uncertainty with respect to the Model rules. For example, these issues will be important to stakeholders:
- The Commentary includes no substantive discussion of possible Pillar Two safe harbors despite the fact that this is an issue of keen interest to business. In many of the comment letters submitted to the OECD, stakeholders made suggestions on how to use safe harbors to ease the burden of complying with the global minimum tax including the use of “readily available” information so that businesses do not have to perform new complex calculations.
- The Commentary language on the UTPR Top-up tax does not provide enough certainty as to how the tax will be imposed, how it will be reported, and how it would be tracked.
- There are some areas where the Model Rules and the Commentary present the possibility of inconsistent interpretation and application of the GloBE rules by various implementing countries. For example, Article 3.2.3 includes an arm’s length requirement for cross-border transactions.
- The issue of the UTPR impact on domestic tax incentive regimes is an issue that has raised considerable political concern in the US. See discussion below.
The Inclusive Framework will now move on to developing an Implementation Framework to support tax authorities in the implementation and administration of the Model Rules. It is expected to consist of administrative rules, guidance, and procedures to facilitate coordinated implementation of the Model Rules. Businesses will be required to prepare a “GloBE information return” with respect to each GloBE participating jurisdiction. This information return will include a variety of information including all information necessary to compute the ETR for each country and the top-up tax of each group member, as well as the allocation of top-up tax to each country.
As the first step in this process, the OECD stated in a public release issued with the Commentary release (“OECD Release”), that the Inclusive Framework will undertake a public consultation to collect input from stakeholders on the matters they consider need to be addressed as part of the Implementation Framework. The OECD Release states clearly that the public consultation is not intended to solicit further comment on the policy choices made in the Model Rules or the Commentary. Instead, the focus is on putting in place mechanisms that will ensure tax administrations and MNEs can implement and apply the GloBE rules in a consistent and coordinated manner while minimizing compliance costs.
The OECD Release includes the following suggested questions that they would like stakeholders to address:
- Do you see a need for further administrative guidance as part of the Implementation Framework? If so, please specify the issues that require attention and include any suggestions for the type of administrative guidance needed.
- Do you have any comments relating to filing, information collection including reporting systems and record keeping? In particular do you have any views on how the design of the information collection, filing obligations and record keeping requirements under GloBE could be designed to maximize efficiency, accuracy, and verifiability of information reporting while taking into account compliance costs?
- Do you have any suggestions on measures to reduce compliance costs for MNEs including through simplifications and the use of safe harbors?
- Do you have views on mechanisms to maximize rule coordination, increase tax certainty, and avoid the risk of double taxation?
Written comments were due by April 11, 2022. The OECD Release stated that a public consultation meeting will be held virtually on April 25, 2022.
Additional Steps from the OECD: The model treaty article for the STTR must be released, along with a multilateral instrument for its implementation.
US Treasury Participation in the OECD Negotiations and Congressional Reaction
The Treasury Department under the leadership of Secretary Yellen has been strongly committed to this project. In order to coordinate the US tax system with the changes proposed by Pillar Two, implementing changes to the GILTI regime to align it more closely with Pillar Two will be necessary and will require legislative action. Due to a number of factors, it is unclear how quickly US legislative action can occur.
House and Senate lawmakers from both parties have expressed caution about proceeding with US legislative changes based on expectations about a global deal without assurances that other countries in the Inclusive Framework will also change their country’s tax laws. They do not want to put US businesses at a disadvantage, but the budget reconciliation legislation may offer the only opportunity in the near future for such changes to be made, especially if there is a change in party control in either the House or the Senate as a result of the 2022 mid-term elections.
SFC Republicans continue to correspond with Treasury Secretary Yellen raising several concerns about the commitments the US has made with respect to negotiations on the OECD project and their position that Treasury has failed to engage meaningfully with SFC Republicans.
Letters from the SFC Republicans were sent to Treasury on December 22, 2021, and February 16, 2022. In the December 22nd letter, SFC Republicans explained their concerns with Pillar One. Treasury responded in a letter dated March 1st with specific details on Pillar One and comments that Treasury had provided multiple bipartisan briefings on the negotiations with the SFC.
In the February 16th letter, SFC Republicans focused on their concerns with Pillar Two and the Model Rules. Specifically, the letter noted that other countries involved in the agreement appear to have negotiated more favorable treatment for their current tax regimes than Treasury has negotiated for the US tax system. The letter stated that the perceived disparity raises “serious questions about the effect of the Pillar 2 agreement on the competitiveness of US businesses and workers, and of the United States as a location for investment.”
In a response dated March 29th, Treasury Assistant Secretary for Legislative Affairs Jonathan C. Davidson repeated the Biden Administration’s commitment to implementing the agreement and noted that the UTPR in the Administration’s Fiscal Year 2023 budget proposal includes provisions intended to protect the US tax base and “ensure that taxpayers would continue to benefit from important tax incentives that provide US jobs and investment, in a manner consistent with the framework outlined by the Pillar 2 Model Rules and Commentary.”
The latest letter, dated March 31, 2022, was signed by all 14 SFC Republicans. The March 31st letter states that the briefings provided by Treasury staff took place after the negotiations had taken place, and that Treasury has not provided a thorough analysis and data to evaluate the effects of the agreement. The letter reminds Treasury the implementation of the agreement will require Congressional action, including Senate approval of a multilateral tax treaty. The letter specifically states to Secretary Yellen that the level of engagement they perceive from her department “does not convey that Treasury views our input as necessary or critical.”
The letter includes specific issues about which they have concerns including:
- The agreement’s more favorable treatment of refundable tax credits over nonrefundable credits, which are more common in the US;
- The failure to include a provision deeming current US law to be compliant under the Pillar Two global minimum tax; and
- The Administration’s proposal to eliminate the US’s foreign-derived intangible income (FDII) provision.
The failure of the EU to move forward yet on approval of their Directive on Pillar Two (discussed below) support the concern about the US moving before other countries have to incorporate Pillar Two into their domestic tax laws. An April 5th statement from senior Republicans on the SFC and the Ways & Means Committee stated that the holdup in the EU is a reason for the US to put their action on this on hold.
US Tax Legislation and An Increase in the GILTI Minimum Tax Rate
The OECD October Statement includes the following reference to the US GILTI rules:
GILTI co-existence: It is agreed that Pillar Two will apply a minimum rate on a jurisdictional basis. In that context, consideration will be given to the conditions under which the US GILTI regime will co-exist with the GloBE rules, to ensure a level playing field.
The House-approved version of the Build Back Better Act (“BBBA”) includes a proposal to increase the GILTI rate to 15.8% and to calculate it on a country-by-country basis. A Senate draft proposal also includes this rate increase. The current GILTI rate is 10.5% through 2025, increasing to 13.1% from 2026.
The BBBA is now being considered by the Senate, and while action has stalled, there are recent reports that a smaller version of the legislation may be able to advance in the coming months. The Administration recently released its Fiscal Year 2023 Budget along with the “Green Book” which includes a detailed description of tax policy proposals included in the budget plan.
With respect to the OECD project, the Green Book states that it is assumed that the House-passed version of the BBBA becomes law, which is by no means a certainty at this date. The Green Book includes a proposal that would adopt the UTPR beginning in 2024 and repeal the Base Erosion and Anti-Abuse Tax (BEAT), noting that the UTPR is preferable to the BEAT. The UTPR proposal in the Green Book adopts the Model Rules as they relate to scope, computation, and allocation.
The conformance to the Model Rules in the Green Book, including with respect to the treatment of tax credits to determine ETR, is of concern to the business community since most tax credits in the US are not refundable and thereby drive down the ETR. The Commentary includes guidance on the definition of “Qualified Refundable Tax Credit”, but the use of the non-qualified tax incentive or tax credit may end up reducing the ETR of the UPE in its home country below 15%, even though for local tax purposes it may be well above 15%. This appears to give the benefit of the tax credit and incentives granted by the UPE jurisdiction to other countries, and in the US could cover key incentives such as the research and development credit, the low-income housing credit, and renewable energy credits.
The Green Book acknowledges this issue and states that the proposal would ensure that taxpayers will continue to benefit from tax credits and other tax incentives, but without detailing how Treasury intends to do this. There is currently bipartisan interest in resolving this issue both at the House Ways & Means Committee and at the Senate Finance Committee.
Another interesting, and perhaps troubling, element of the GILTI proposal is that Treasury proposes to raise the rate to 20% (plus a 5% haircut for foreign tax credits) rather than 15%. This means that foreign-headquartered companies with US operations will be subject to the UPE’s IIR at 15% and GILTI at 20%. The House-approved version of BBBA provides a credit for IIR taxes paid by a UPE to offset GILTI, but continues to apply the GILTI regime in those cases.
Next Steps in the US with Respect to Tax Law Changes
As we have discussed in this True Insight and in a True Insight published on December 15, 2021, which detailed the international tax proposals included in the House-approved version of the BBBA, Treasury and Congress are considering multiple changes to the current US tax laws in order to align the US tax system to the Pillar Two Model Rules. In addition, tax practitioners have identified certain issues that may be problematic for US companies related to the interaction of the Pillar Two Model Rules and the operation of the US international tax laws.
Issues that are being addressed include:
- Proposals included in the House-approved BBBA including the increase in the GILTI rate and the rule that GILTI must be calculated on a country-by-country basis;
- Should the foreign-derived intangible income (FDII) deduction be repealed or the rules modified;
- Should the rules for the BEAT be repealed and the UTPR be adopted in its place;
- The treatment of tax credits;
- The creditability of the UTPR under US foreign tax credit (FTC) rules.
We will discuss these proposed changes and the prospect for US legislation on these issue in 2022 in a future True Insight.
Status of European Union Action on Pillar Two
Transformation of the OECD global deal into European Union (“EU”) law has been a priority of the EU for many months. Two days after the release of the Model Rules, the EU released its Proposed Directive based on the Model Rules. From early on, all 27 EU countries said in principle that they supported the deal, which resulted in the draft directive being presented so quickly on the global minimum tax after issuance of the Model Rules. Tax law changes in the EU require unanimity, however, and a handful of EU countries were not willing to support the directive as first drafted.
The Economic and Financial Affairs Council of the EU (ECOFIN) met on April 5, 2022, to reach an accord on the implementation of the Pillar Two framework. There was optimism that a compromise could be reached on open issues from the prior meeting on March 15, 2022, where Estonia, Sweden, and Malta requested a broader scope and time frame with respect to the optional IIR and UTPR deferral. As a result, a compromise text was sent to the member countries extending the maximum deferral to six (6) years from five (5) and increasing the in-scope UPEs to twelve (12) from ten (10).
Also discussed was a change in the effective dates for implementing both the IIR and UTPR. The IIR was originally slated for an effective date of January 1, 2023, and the UTPR on January 1, 2024. The current discussions postpone these dates to after December 31, 2023, and December 31, 2025, respectively.
Poland was not willing to agree, however, without a defined legal link between Pillar One and Pillar Two. Their position is that the two pillars were approved as a package at the OECD and should be introduced as a package at the EU level, and that a declaration committing to implementing Pillar One is insufficient for Poland. The EU plans to introduce a proposed directive on Pillar One as soon as work at the OECD has advanced, which should be later this year.
The French Finance Minister expressed concern about this position since he stated that a legally binding link is not possible. He said that an EU directive cannot be made dependent on an international agreement, which would undermine EU sovereignty. France currently holds the presidency of the Council of the EU and would like to complete work on this issue prior to the end of its presidency on June 30th.
As the Ministers were unsuccessful in developing an agreement on all issues, the entire agreement was again tabled. Members will reconvene on May 24, 2022, to try and reach an accord. The French Finance Minister has said that he is confident they will reach a unanimous agreement. There is some concern that if the EU fails to get an agreement on Pillar Two by the end of 2022, that will signal problems for Pillar Two globally.
The Two-Pillar Solution has the potential to have significant impact on the taxation of MNEs in the US and globally. The current action on the Pillar Two Model Rules in the US and in the EU should be monitored by businesses which will be affected. Going forward, in-scope MNEs should consider the following:
- Evaluate the potential tax impact to their business organization’s overall tax burden by performing a materiality testing and impact assessment;
- Ensure compliance with Pillar Two, by calculating precisely the jurisdictional ETR and top-up tax in each country where MNEs operate and allocate any top-up tax amount, accordingly. This entails gathering the relevant data to perform calculations, such as the Substance-based Income Exclusion amount for each jurisdiction which includes the sum of the payroll carve-out and the tangible asset carve-out for each constituent entity;
- Determine in which jurisdiction(s) the IIR might apply and if such jurisdictions refrain from implementing GloBE rules or are deemed to have a non-qualified IIR, then identify potential UTPR jurisdictions; and
- Properly train in-house tax teams to be able to accurately calculate the jurisdictional top-up tax in each country where they operate and assess potential tax impact to MNE’s overall tax burden.
Should you require assistance in evaluating the potential tax impact of the GloBE rules to your business organization’s overall tax burden or have any questions about the information in this True Insight, please do not hesitate to contact a member of your TPC engagement team.
 Members of the BEPS Inclusive Framework include 140 participating member countries — not only developed countries who are OECD members but many developing countries.