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November 8, 2019
BEPS 2.0 – Pillar Two: the OECD issues consultation document on design of global minimum tax rules
On 8 November 2019, the Organisation for Economic Co-operation and Development (OECD) released a public consultation document on the Global Anti-Base Erosion (GloBE) proposal under Pillar Two of the ongoing project titled “Addressing the Tax Challenges of the Digitalisation of the Economy” (the Consultation Document). The Consultation Document seeks input on three technical aspects of the design of these new global minimum tax rules. The particular design proposals were prepared by the OECD Secretariat and do not represent the consensus view of the countries participating in the project as members of the Inclusive Framework.
This Alert focuses on the process described in the Consultation Document. A comprehensive Alert will be issued early next week.
In May 2019, the OECD released the “Programme of Work to Develop a Consensus Solution to the Tax Challenges Arising from the Digitalisation of the Economy” (the Workplan).1 The Programme of Work is divided into two pillars:
On 9 October 2019, the OECD released a public consultation document on an OECD Secretariat proposal for a “unified approach” under Pillar One and invited interested parties to submit comments no later than 12 November 2019.2
On 8 November 2019, the OECD released this Consultation Document on three design aspects relating to the GloBE proposal.
The Global Anti-Base Erosion proposal
Pillar Two of the Workplan seeks to develop an integrated set of global minimum tax rules to ensure that the profits of internationally operating businesses are subject to at least a minimum rate of tax. The OECD has indicated that the level at which the minimum tax rate will be set is to be discussed by the participating countries once other key design elements of the proposal are fully developed.
The four components of the GloBE Proposal set out in the Programme of Work are:
The GloBE Proposal would also incorporate an ordering rule to avoid the risk of double taxation.
The Consultation Document
The Consultation Document describes design issues on which input is sought in three categories:
The Consultation Document also includes an annex that sets out illustrations of the application of the carry-forward of excess taxes and tax attributes and of the application of deferred tax accounting. All the examples are based on the potential application of the income inclusion rule.
Interested parties are invited to submit comments on the Consultation Document no later than 2 December 2019. The OECD will hold a consultation meeting on 9 December 2019 to give stakeholders an opportunity to discuss their comments with the Inclusive Framework countries.
As the Consultation Document expressly states, the proposals under Pillar Two represent a substantial change to the tax architecture and go well beyond digital businesses or digital business models. These proposals could lead to significant changes to the overall international tax rules under which multinational businesses operate. It is important for businesses to follow these developments closely as they unfold in the coming months, as work continues on key technical, design, and policy aspects of the GloBE Proposal.
A comprehensive Alert on this Consultation Document will be published early next week.
1. See EY Global Tax Alert, OECD workplan envisions global agreement on new rules for taxing multinational enterprises, dated 3 June 2019.
2. See EY Global Tax Alert, The OECD takes next step on BEPS 2.0 – Proposal for a “unified approach” for additional market country tax, dated 10 October 2019.
For additional information with respect to this Alert, please contact the following:
Ernst & Young Belastingadviseurs LLP, Rotterdam
Ernst & Young Belastingadviseurs LLP, Amsterdam
Ernst & Young LLP (United States), Global Tax Desk Network, New York
Ernst & Young LLP (United States), Washington, DC