Another day, another proposal to substantially change the international tax architecture.  This time it is the GloBE Proposal under Pillar Two.

Pillar Two seeks to ensure that the profits of multinational enterprises are subject to a minimum tax rate by providing jurisdictions with a right to “tax back” where other jurisdictions have not exercised their primary taxing rights, or where a payment is otherwise subject to low levels of effective taxation.

The GloBE proposal will operate as a top-up to an agreed fixed rate but the actual rate of tax to be applied will not be discussed until the key design elements of the GloBE are fully developed.

A consultation document published today by the OECD Secretariat for comment until 2 December explores the three technical design aspects of the GloBE proposal:

  1. Determination of the tax base (whether financial accounts should be the starting point, approaches to neutralising differences in financial accounts and taxable income, and mechanisms to address timing differences such as the treatment of carry-forward losses and the recognition of income and expenses)
  2. The extent to which the rules will permit blending of high-tax and low-tax income from different sources to determine the effective (blended) rate of tax, and whether such blending should be on a worldwide, jurisdictional, or entity level
  3. The appropriateness of carve-outs and thresholds and whether they should be based on facts and circumstances or objective criteria

There are four component parts of the GloBE proposal: an income inclusion rule, an undertaxed payments rule, a switch-over rule and a subject to tax rule. A number of the technical and design aspects of these depend on policy choices, for example, the mechanics and operation of the undertaxed payment rule and the nature and scope of the subject to tax rule, and there will likely be further public consultation on these aspects.

There is still some way to go.  The consultation document shows that there are significant policy questions still to be answered and complex, technical issues to be resolved on the component parts of Pillar Two in order to meet the goal of arriving at a long-term consensus solution by the end of 2020.

For our posts on the Pillar One proposal see:

New taxing right to be overlay to arm's length principle

Dispute risk under the OECD Secretariats unified approach