February 25, 2022
Report on recent US international tax developments – 25 February 2022
The G20 Finance Ministers and Central Bank Governors recently re-endorsed the previously announced ambitious Base Erosion and Profit Shifting (BEPS) 2.0 timeline, including having a final multilateral instrument, model rules for inclusion in domestic legislation, and a commentary completed by the middle of 2022. To meet this deadline, the Organisation for Economic Co-operation and Development (OECD) has released initial blocks of these rules as drafts for consultation purposes along with very quick turnaround deadlines for comments.
During a Tax Talks webinar on 21 February, OECD officials discussed plans for future releases, but conceded that stakeholders have become increasingly frustrated with the rush to develop these rules. One official said, “we are trying to address them … with as much engagement as is possible within the overall timelines that we have.”
BEPS 2.0 drafts have been released on nexus and revenue sourcing and tax base determinations for Amount A, and an OECD official said it is expected that other blocks of Pillar One will be released on a rolling basis once the scoping rules are “stabilized.”
OECD officials also provided an overview of the Pillar Two global minimum tax rules (or GloBE rules) that confirmed the basics of the rule – a 15% jurisdictional effective rate, assessed generally on a top-down approach. However, the ordering for the qualified domestic minimum tax (QDMT), newly released in the December 2020 Model Rules, was highlighted as a provision that would be applied first in determining the appropriate jurisdiction to which any top-up tax would be owed. Thus, if a jurisdiction adopts a QDMT, it will have the first right to collect tax, while a jurisdiction that adopts the income inclusion rule will have the right to collect tax (on a top-down basis) only when there is not a QDMT in a local jurisdiction. The undertaxed payments rule (UTPR) was identified as the third and last step in determining the jurisdiction to which tax could be owed but was not discussed.
An official also presented a Pillar Two timeline, saying the OECD is adding the finishing touches to the commentary and that it is expected to be released shortly. It appears that once the commentary is released, the OECD will turn to meet their goal of a February/March public consultation on implementation, with rules that are intended to deliver intended outcomes with a sensible compliance burden, including safe harbors and simplified tax administration processes.
On the subject to tax rule (STTR), an OECD official presented the work streams as: (i) an STTR model treaty provision; (ii) a commentary; (iii) the process to assist in implementing; and (iv) a multilateral instrument. He said the OECD is developing a new multilateral instrument to facilitate implementation of the STTR in affected tax treaties, which is envisioned to be similar to the BEPS Multilateral Instrument and will modify the application of existing treaties to give effect to the rule. As identified in the October 2021 Inclusive Framework agreement, the STTR will apply to royalties, interest and other payments that remain under discussion.
In other OECD news, an official was quoted as saying the organization is finalizing a tax reporting framework for cryptoassets. The official said, “The goal of the OECD work is to design a tax reporting exchange framework that will allow tax administrations to obtain and then automatically exchange the relevant information, which is needed to address tax compliance risks … .” The OECD will publish the framework plan, reportedly including proposed revisions to the common reporting standard, in March 2022.
For additional information with respect to this Alert, please contact the following:
Ernst & Young LLP (United States), International Tax and Transaction Services, Washington, DC