The Inclusive Framework on Base Erosion and Profit Shifting (BEPS) on 14 March released a commentary document on the BEPS 2.0 Pillar Two global minimum tax rules (GloBE Rules), providing detailed guidance on the operation of these rules. The commentary is 228 pages long and is accompanied by 50 pages of examples that address a host of issues. Among them, the commentary reconfirmed that there could be a top-up tax allocable under the Undertaxed Payments Rule (UTPR) when domestic income earned by a company in its headquarter jurisdiction has an effective tax rate as computed under the Pillar Two model rules that is below 15%. This is an outcome that has raised concerns among many United States (US) companies that avail themselves of incentives and credits that are not qualified refundable credits as defined in the model rules under Pillar Two. In effect, this could mean that a top-up tax may be payable in other jurisdictions because certain credits and incentives were utilized in the US.

The Organisation for Economic Co-operation and Development (OECD) indicated that the next step in regard to the GloBE Rules will be development of the Implementation Framework, “as agreed under the Detailed Implementation Plan set out in the October Statement.” Inclusive Framework members are seeking public input on the issues by 11 April. The public consultation is meant to focus on “mechanisms that will ensure tax administrations and MNEs can implement and apply the GloBE Rules in a consistent and co-ordinated manner” while minimizing compliance costs.

Senate Finance Committee Chairman Ron Wyden recently issued a press release indicating he supports putting Russia and Belarus on the list of countries subject to Internal Revenue Code (IRC) Section 901(j) sanctions. IRC Section 901(j) eliminates the preferential 10.5% GILTI (global intangible low-taxed income) tax rate and disallows foreign tax credits for income earned in countries that support terrorism or without US diplomatic relations. Chairman Wyden’s proposal would put countries that are participating in or materially support the invasion of Ukraine on the list of countries subject to the sanction. This latest proposal follows President Joe Biden’s revocation of most favored nation status for Russia and some talk on Capitol Hill of terminating the US-Russia tax treaty.

An Internal Revenue Service (IRS) official this week recommended that taxpayers should always request being under the new fast-track private letter ruling (PLR) process that was announced in January 2022 in Rev. Proc. 2022-10, saying there is no down-side. The IRS instituted the 18-month pilot program to address corporate PLR requests, with a target completion of 12 weeks from assignment to an agency review team.

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For additional information with respect to this Alert, please contact the following:

Ernst & Young LLP (United States), International Tax and Transaction Services, Washington, DC

• Arlene Fitzpatrick | arlene.fitzpatrick@ey.com
• Joshua Ruland | joshua.ruland@ey.com