OECD Issues an Administrative Guidance on Clarifying the Interpretation of the OECD/G20 Pillar Two GloBE Rules

The Organization for Economic Co-operation and Development (OECD) and the G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) have issued technical guidance regarding the implementation of the international tax reform aimed to ensure that multinational enterprises (MNEs) are subject to a 15% minimum tax rate. The Agreed Administrative Guidance for the Pillar Two GloBE Rules is created to provide greater certainty and coordinated outcomes for businesses as they get ready to comply with the global minimum tax rules starting in 2024.

The guidance includes information on the recognition of the United States’ Global Intangible Low-Taxed Income (GILTI), it covers the issue of Qualified Domestic Minimum Top-up Taxes, and contains an overview of the scope and operation of the GloBE Rules. It also addresses shareholders’ feedback on technical issues related to the implementation of Pillar Two, such as the collection of top-up tax in a jurisdiction without GloBE income and the treatment of tax incentives.

The Inclusive Framework is expected to finalize the model provision for the Subject to Tax Rule and the related multilateral regulation by mid-2023. Technical work under BEPS Pillar One is ongoing as well, with the goal of finalizing a new Multilateral Convention by mid-2023 to initiate the process of its implementation in 2024.

The guidance will be incorporated into the next edition of the Commentary to the Global Anti-Base Erosion Model Rules, which is expected to be released later this year. This guidance will play a crucial role in promoting coordinated outcomes and clarifying regulations for MNE groups under the GloBE Rules.

Note: The implementation of Pillar Two is currently ongoing in the European Union.