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July 18, 2023

OECD/G20 Inclusive Framework releases documents on Pillars One and Two: First Impressions

  • On 17 July 2023, the Organisation for Economic Co-operation and Development (OECD) released technical documents on Pillars One and Two as well as other international tax matters.
  • Key documents include additional Administrative Guidance, the Global Anti-Base Erosion (GloBE) Information Return and the model treaty provisions and related commentary for the Subject to Tax Rule under Pillar Two and a consultation document seeking stakeholder input on Amount B of Pillar One.
  • Companies should review these documents to evaluate the potential implications and continue to monitor ongoing implementation activities in relevant countries.

Executive summary

On 17 July 2023, the OECD released several technical documents on Pillars One and Two of the OECD/G20 project on addressing the tax challenges of the digitalization of the economy (the BEPS 2.0 project). At the same time, the OECD released additional documents covering a range of international tax topics, including developments with respect to tax transparency, that were prepared for a meeting between the G20 Finance Ministers and Central Bank Governors in Gandhinagar, India on 17-18 July.

The documents released on Pillar Two have been approved by the Inclusive Framework on Base Erosion and Profit Shifting (BEPS). The Administrative Guidance on the Global Anti-Base Erosion (GloBE) Model Rules provides additional information on a series of technical issues and includes two new safe harbors. The GloBE Information Return has been finalized and includes a transitional framework for simplified reporting on a jurisdictional, rather than entity, basis in addition to specifying how the information is to be shared among jurisdictions that implement the GloBE Rules. The report on the Subject to Tax Rule (STTR) provides model tax treaty provisions and related commentary that can be used by jurisdictions to incorporate the STTR in their bilateral tax treaties.

On Pillar One, the OECD released a public consultation document on Amount B, reflecting further developments since the earlier consultation on this topic and seeking input from stakeholders. This document does not yet reflect consensus as there are remaining open issues.

This EY Global Tax Alert provides an overview of these documents. More detailed EY Global Tax Alerts on the documents will be issued shortly.

Detailed discussion


In October 2021, the OECD released a statement reflecting the high-level agreement of Inclusive Framework member jurisdictions on core design elements of Pillars One and Two of the BEPS 2.0 project.1

Since that agreement was reached, the Inclusive Framework has released a series of significant agreed documents on the global minimum tax under Pillar Two, including Model Global Anti-Base Erosion (GloBE) Rules,2 Commentary to the Model GloBE Rules,3 guidance on GloBE safe harbors4 and GloBE Administrative Guidance.5 The OECD also released two public consultation documents, seeking input from stakeholders on areas where work is ongoing in the Inclusive Framework but consensus had not yet been reached, which cover a standardized GloBE Information Return6 and potential dispute prevention and resolution mechanisms to provide tax certainty for the GloBE Rules.7

The OECD also has released working drafts on the nexus and profit allocation rules under Pillar One, as well as on administrative aspects of Pillar Two, in the form of consultation documents.8 These working drafts did not yet reflect consensus agreement in the Inclusive Framework and were released to obtain input from stakeholders.

On 12 July 2023, the OECD released an outcome statement reflecting the agreement reached by 138 of the 143 Inclusive Framework member jurisdictions on the BEPS 2.0 project.9 The July 2023 statement summarizes Inclusive Framework deliverables on (i) the Multilateral Convention (MLC) on Amount A of Pillar One, (ii) the report on Amount B of Pillar One, (iii) the STTR under Pillar Two, and (iv) plans for implementation support for countries.

July 2023 Pillar Two documents

Administrative Guidance

This is the second set of Administrative Guidance items released by the Inclusive Framework, following the release of the first set of Administrative Guidance items in February 2023. The July Guidance includes guidance on currency conversion rules for GloBE calculations, tax credits and the application of the Substance-based Income Exclusion (SBIE). It also includes further guidance on the design of a Qualified Domestic Minimum Top-up Tax (QDMTT) as well as providing a QDMTT Safe Harbour. In addition, it provides a Transitional UTPR Safe Harbour. The July Guidance will be incorporated into a revised version of the Commentary that will be released later this year.

The Inclusive Framework will continue to consider Administrative Guidance priorities on an ongoing basis where more clarity is required, with the aim of releasing guidance as soon as it is agreed so that the Inclusive Framework member jurisdictions can meet their implementation schedule.

General Currency Conversion Rules for the GloBE Rules

The July Guidance addresses four specific issues in relation to currency conversion:

  1. In which currency should the GloBE calculations be made, including for disclosure purposes in the GloBE Information Return?
  2. Where amounts relevant to the GloBE calculations are not already translated into the currency required under the GloBE Rules for purposes of preparing Consolidated Financial Statements, how should these amounts be translated?
  3. What currency translation rules should apply for purposes of translating any Top-Up Tax under the Income Inclusion Rule (IIR) or UTPR Top-Up Tax Amount determined using the currency required under the GloBE Rules into the currency in which the GloBE tax liability is payable?
  4. What currency translation rules apply for the purposes of determining whether a monetary threshold has been met where the monetary threshold is expressed in a currency different from the currency required under the GloBE Rules?

Tax credits

The treatment of tax credits under the GloBE Rules is important because whether credits are treated as GloBE Income or a reduction to Covered Taxes can have a significant impact on the jurisdictional effective tax rate (ETR) calculation. The GloBE Rules provide that tax credits that are refundable within four years (Qualified Refundable Tax Credits or QRTCs) are not reductions to Covered Taxes. The July Guidance addresses transferable credits, providing that a Marketable Transferable Tax Credit is treated as GloBE Income and not as a reduction to Covered Taxes. Whether a tax credit is considered a Marketable Transferable Tax Credit will be determined based on the legal transferability and the price at which it can be transferred.

The July Guidance also addresses Qualified Flow-through Tax Benefits (which were addressed in the February Guidance), the timing of income from QRTCs and the treatment of certain nonrefundable tax credits.

Substance-based Income Exclusion (SBIE)

The SBIE excludes a fixed return for substantive activities within a jurisdiction, based on Payroll and Tangible Assets, from the application of the GloBE Rules. The July Guidance addresses employees and tangible assets that are located outside the jurisdiction of the Constituent Entity at least some of the time during the relevant period, such as employees working remotely or under secondment and assets used in international transportation, satellites and submarine cables. A threshold test of 50% will be applied to determine whether the employee has worked or the asset has been used in the Constituent Entity's jurisdiction. If this threshold is met, the full exclusion can be applied. If it is not met, employees and assets can be allocated on a pro-rata basis.

For simplification purposes, the July Guidance provides that an MNE Group does not have to make the full calculation of the SBIE, but can make a claim for some, but not all, of its Eligible Payroll Costs and Eligible Tangible Assets in the jurisdiction.

The July Guidance provides that for purposes of the SBIE, stock-based compensation included in employee expenses should be based on the amount included in the financial accounts, and should not be impacted by the election that allows the expense included in GloBE Income or Loss to be equal to the tax-deductible expense.

The GloBE Rules treat a "right-of-use" asset as a tangible asset if the underlying asset itself is tangible. The July Guidance provides rules on treatment of the lessor of an operating lease and short-term financial leases. It also clarifies that impairment losses need to be taken into consideration when determining the carrying value of tangible assets for calculation of the carveout. Finally, it clarifies the treatment of the carveout under a Deductible Dividend Regime.

Qualified Domestic Top-up Tax (QDMTT)

The July Guidance addresses additional issues on the QDMTT that were not addressed in the February Guidance.

Jurisdictions that are concerned about the possibility that the QDMTT will result in a greater tax charge than the tax charge that would arise for a Parent Entity under the GloBE Rules may design their QDMTT legislation to apply only where all the domestic Constituent Entities in the jurisdiction are 100% owned by the Ultimate Parent Entity (UPE) or a Partially Owned Parent Entity for the entire fiscal year. The July Guidance provides specific rules on the treatment of Joint Ventures and Minority-Owned Constituent Entities.

The GlobE Rules are based on jurisdictional blending for the computation of income and calculation of the ETR. The July Guidance provides that QDMTT, including the ETR and Top-up Tax computational rules, may be applied on a sub-national level (e.g., a region or province) where the domestic rules of the jurisdiction do not provide for taxation of MNE Groups at the national level.

The July Guidance provides options for the allocation of the QDMTT liability to specific entities, permits application of the QDMTT to Flow-through Entities that are Stateless Constituent Entities and provides options to impose QDMTT on Flow-through Entities, including both UPEs and intermediate parent entities.

The July Guidance includes specific rules for a UPE that is a Flow-through Entity and a UPE subject to a Deductible Dividend Regime, for Eligible Distribution Tax Systems and for Investment Entities, including the application of related elections.

The February Guidance contained priority rules on allocation of CFC taxes and permanent establishment related taxes. The July Guidance includes additional rules on the allocation of taxes paid on the income of hybrid entities and certain distributions.

The GloBE Rules contain transitional rules, which provide that the Transition Year for purposes of these rules is the first year that the MNE Group comes within the scope of the GloBE Rules (under the IIR and/or the UTPR) for that jurisdiction. The July Guidance provides that a QDMTT must have a supplemental rule that treats the fiscal year that the GloBE Rules come into effect for a Constituent Entity as a New Transition Year and resets a number of attributes of such entities (e.g., deferred taxes).

The July Guidance provides three options for addressing in a QDMTT the exclusion from UTPR for MNE Groups in the initial phase of their international activity.

The July Guidance addresses the currency to be used for the QDMTT, depending on the accounting standard that is required to calculate the QDMTT (the UPE consolidated financial statements standard or a local accounting standard).

The July Guidance also addresses some additional QDMTT design issues, including:

  • A QDMTT must include specific rules for multi-parented MNE-groups similar to the GloBE Rules.
  • For filing purposes, a QDMTT information return may follow a format different from the GloBE Information Return.
  • A jurisdiction must ensure that its QDMTT legislation incorporates the outcomes provided by all the definitions in the GloBE Rules and the rules determining the location of an Entity or Permanent Establishment in Chapter 10 of the GloBE Rules.

Under the GloBE Rules, QDMTT payable reduces the Top-up Tax. The July Guidance provides that QDMTT payable that is challenged by the MNE Group or is determined not assessable or collectible by the tax authority of the jurisdiction based on constitutional law or other superior law, or based on a specific agreement with the government of the QDMTT jurisdiction, is not to be considered QDMTT payable for purposes of the GloBE Rules.

QDMTT Safe Harbour

The July Guidance introduces the QDMTT Safe Harbour. Where an MNE Group qualifies for a QDMTT Safe Harbour, the Top-up Tax payable under the GloBE Rules is deemed to be zero, rather than the QDMTT payable being a credit. A QDMTT that qualifies for a safe harbor must meet all the following standards:

  • The QDMTT Accounting Standard, which requires a QDMTT to be computed based on the UPE's financial accounting standard or a local financial accounting standard subject to certain conditions
  • The Consistency Standard, which requires the QDMTT computations to be the same as the computations required under the GloBE Rules except where the Commentary explicitly requires a QDMTT to depart from the GloBE Rules or where the Inclusive Framework decides that an optional variation that departs from the GloBE Rules still meets the standard
  • The Administration Standard, which requires the QDMTT jurisdiction to meet the requirements of an on-going monitoring process similar to the one applicable to jurisdictions implementing the GloBE Rules

The Inclusive Framework will rely on the peer review process to determine whether a QDMTT meets these additional standards and thereby qualifies for the safe harbor. These standards will be tested based on the jurisdiction's QDMTT legislation and how it administers the QDMTT and not based on how the QDMTT legislation may apply to particular MNE Groups.

Transitional UTPR Safe Harbour

The UTPR is designed to operate as a backstop to the IIR by encouraging jurisdictions to adopt the GloBE Rules and MNE Groups to structure their holdings in a way that brings their operations within the charge of the IIR. However, the operation of the rule order under the GloBE Rules means that the UTPR would effectively operate as the primary mechanism for imposing top-up tax in the UPE jurisdiction where that jurisdiction has not introduced a QDMTT.

The Transitional UTPR Safe Harbour is designed to provide transitional relief in the UPE jurisdiction during the first years in which the GloBE Rules come into effect. Under the Transitional UTPR Safe Harbour, the UTPR Top-up Tax Amount calculated for the UPE jurisdiction shall be deemed to be zero if the UPE jurisdiction has a corporate income tax with a rate of at least 20%.

The Transitional UTPR Safe Harbour applies for fiscal years that run no longer than 12 months and that begin on or before 31 December 2025 and end before 31 December 2026.

An MNE Group that qualifies for more than one transitional safe harbor may choose which safe harbor to apply for that jurisdiction. When an MNE qualifies for both the Transitional Country-by-Country reporting (CbCR) Safe Harbour and the UTPR Safe Harbour in a jurisdiction in a fiscal year, the MNE may elect to apply the Transitional CbCR Safe Harbour, rather than the Transitional UTPR Safe Harbour to avoid losing the benefit of the Transitional CbCR Safe Harbour in a subsequent fiscal year under the "once out, always out" approach.

GloBE Information Return

The GloBE Rules provide for the development of a standardized GloBE Information Return (GIR). The GIR document sets out a standard template for the GIR, a transitional simplified jurisdictional reporting framework, an approach for dissemination of the GIR and next steps.

The GIR consists of a general section, which applies to the MNE Group as a whole, and multiple jurisdictional sections based on a single template that needs to be filled in for every jurisdiction where the MNE Group operates. The jurisidictional sections require limited information disclosures in respect of jurisdictions where relevant safe harbors and exclusions apply. For jurisdictions where safe harbors and exclusions do not apply, the MNE Group is to report its ETR computations, followed by Top-up Tax computations where necessary and the allocation of Top-up Tax, if any.

The transitional simplified jurisdictional reporting framework allows for a simplified jurisdictional reporting framework that would apply to all fiscal years beginning on or before 31 December 2028 but not including a fiscal year that ends after 30 June 2030. During the transitional period, MNE Groups can elect a simplified jurisdictional reporting framework for jurisdictions for which no Top-up Tax liability arises or for which Top-up Tax liability arises but does not need to be allocated on a Constituent Entity basis. This allows an MNE Group to provide GloBE information at a jurisdictional level, rather than on a Constituent Entity basis.

Dissemination of the GIR information to jurisdications is to be based on a targeted approach, which is intended to ensure that information is made available to implementing jurisdictions with taxing rights under the GloBE Rules. The UPE jurisdiction (if it implements the GloBE Rules) will receive the GIR as a whole. Centralized filing requirements (by the UPE or a Designated Filing Entity) and the appropriate mechanisms to allow tax administrations to automatically exchange GloBE information collected will be finalized, including a framework of Qualifying Competent Authority Agreements and information technology solutions to support the exchange of information.


The STTR is a treaty-based rule that applies to specified intragroup payments from source jurisdictions that are subject to a tax rate below 9% in the jurisdiction of the payee. The STTR document contains the model treaty provision for the STTR together with an accompanying commentary explaining the purpose and operation of the STTR. It provides that the STTR takes precedence over the GloBE Rules. A multilateral convention could facilitate the implementation of the STTR.

The STTR document provides that the relevant tax rate is the statutory rate of tax applicable in the jurisdiction where the person deriving the income is a resident. However, where the person benefits from a preferential adjustment in respect of the income, such as a full or partial exemption, a deduction from the tax base or a tax credit, the tax rate is determined after taking into account the effect of that preferential adjustment.

The STTR applies to interest, royalties, and a defined set of other payments made between connected companies, including payments made in consideration for the use of, or the right to use, distribution rights in respect of a product or service, insurance and reinsurance premiums, fees to provide a financial guarantee, or other financing fees, payments for the use of, or the right to use, industrial, commercial or scientific equipment and any income received in consideration for the provision of services.

The STTR document also lists a series of exclusions from the STTR and provides for a so-called mark-up threshold and materiality thresholds with respect to application of the STTR. The STTR document also includes an anti-avoidance rule, compatible with other general anti-avoidance rules included in treaties, that targets particular situations, including the use of back-to-back payments, or interpose a connected person that is subject to a tax rate above 9%.

On administrative matters, the STTR document provides that the tax liability under the STTR will be determined following the end of the relevant fiscal year and shall not be levied until it is determined. The competent authorities of the Contracting States may, by mutual agreement, determine the mode of application.

July 2023 Pillar One document

The public consultation document on Amount B of Pillar One reflects work that has been done since release of the first consultation document on Amount B in December 2022, on which stakeholder input was received. The Inclusive Framework invites submission of written comments on the new document by 1 September 2023.

The document focuses on the scope of Amount B and on the appropriateness of the pricing framework, including its application to the wholesale distribution of digital goods, country uplifts within geographic markets, and the criteria for applying Amount B using a local database.

The document describes the scope of Amount B as being baseline wholesale distributors that can be subject to a one-sided transfer pricing method by applying the proposed pricing framework. The document presents two alternative approaches to scope that are being considered by the Inclusive Framework, but notes the possibility that these alternatives may be modified, aspects of the alternatives may be combined or another alternative may be developed. The document also notes that the transactional net margin method is the default most-appropriate method for pricing in-scope transactions, subject to an exception allowing taxpayers and tax administrations to assert that the comparable uncontrolled pricing method using internal comparables is more appropriate.

With respect to pricing, the document addresses the use of a pricing framework based on a pricing matrix (with a range of operating margins between 1.5% and 5.5%, depending on the industry and measures of functional intensity), with additional mechanisms to address certain geographic effects. The document also includes sections on documentation, transitional issues and tax certainty.

The outcome statement released on 12 July 2023 indicates that the aim is for the Inclusive Framework to approve and publish a final report on Amount B by year-end so that Amount B can be incorporated in the OECD Transfer Pricing Guidelines by January 2024.

With respect to Amount A of Pillar One, as reflected in the July 2023 outcome statement, work is continuing in the Inclusive Framework to resolve remaining issues, with the aim of finalizing the Multilateral Convention for Amount A so it can be opened for signature in the second half of 2023.

Other July 2023 documents

In connection with this week's G20 meeting, the OECD released several documents that cover international tax matters beyond the BEPS 2.0 project. The OECD Secretary-General Tax Report to G20 Finance Ministers and Central Bank Governors provides an update on the ongoing work on Pillars One and Two and indicates that the OECD is continuing to work on economic impact estimates of the Pillar Two global minimum tax and will publish its analysis in the coming months.

In the area of tax and development, the Secretary-General Report references the release of the G20/OECD Roadmap on Developing Countries and International Tax, which provides an update on developments in this area since the 2022 report. This update focuses on developing countries' engagement with respect to both the BEPS 2.0 project and the original BEPS project and on new programs with respect to carbon mitigation approaches and value-added taxes (VAT)/Goods and Services Taxes (GST) on e-commerce.

The Secretary-General Report includes a section on developments with respect to tax transparency, noting recent updates on information reporting with respect to crypto-assets and implementation of effective information exchange practices. Three new documents related to tax transparency prepared at the request of the Indian G20 Presidency are attached to the report:

  1. A report on Enhancing International Tax Transparency on Real Estate
  2. An update on Unleashing the Potential of Automatic Exchange of Information for Developing Countries
  3. A report on Facilitating the Use of Tax-Treaty-Exchanged Information for Non-tax Purposes

In addition, the Secretary-General Report provides brief updates on activity related to VAT on digital trade, tax and crime, digital transformation of tax administration, tax certainty, and tax policy and climate change. Finally, the Report concludes with a status update on jurisdictions' implementation of the minimum standards established in the original BEPS project under Actions 5 (harmful tax practices), 6 (tax treaty abuse), 13 (CbCR) and 14 (mutual agreement procedure).


These documents reflect important developments in the OECD's work on Pillars One and Two and provide an update on ongoing OECD work in other areas of international tax, including tax transparency and tax and climate change. The new Administrative Guidance and the GIR are particularly significant given that the Pillar Two GloBE Rules are expected to take effect in countries around the world in 2024. Companies should review these documents to evaluate the potential implications and continue to monitor the ongoing implementation activities in relevant countries. In addition, companies may want to take the opportunity to engage with global policymakers on practical implications of the proposed approach to Amount B reflected in the public consultation document.

More detailed EY Global Tax Alerts on key aspects of these documents will be issued shortly.


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

Ernst & Young Belastingadviseurs LLP (Netherlands)

Ernst & Young Limited (New Zealand)

Ernst & Young LLP (United States)

Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor



1 See EY Global Tax Alert, OECD releases statement updating July conceptual agreement on BEPS 2.0 project, dated 11 October 2021.

2 See EY Global Tax Alert, OECD releases Model Rules on Pillar Two Global Minimum Tax: Detailed review, dated 22 December 2021.

3 See EY Global Tax Alert, OECD releases Commentary and illustrative examples on Pillar Two Model Rules, dated 21 March 2022.

4 See EY Global Tax Alert, OECD/G20 Inclusive Framework releases document on safe harbors and penalty relief under Pillar Two GloBE rules, dated 21 December 2022.

5 See EY Global Tax Alert, OECD/G20 Inclusive Framework releases Administrative Guidance under Pillar Two GloBE Rules: Detailed Review, dated 9 February 2023.

6 SeeEY Global Tax Alert, OECD releases consultation document on Pillar Two GloBE Information Return, dated 21 December 2022.

7 See EY Global Tax Alert, OECD releases consultation document on tax certainty for the Pillar Two GloBE rules, dated 22 December 2022.

8 See EY Global Tax Alerts, OECD releases Progress Report on Amount A of Pillar One of BEPS 2.0 project: A detailed overview, dated 15 July 2022; OECD releases public consultation document on administration and tax certainty aspects of Amount A of Pillar One, dated 21 October 2022; OECD releases public consultation document on Amount B of Pillar One on baseline marketing and distribution functions, dated 15 December 2022; and OECD releases public consultation document on Pillar One Amount A and Digital Services Taxes, dated 23 December 2022.

9 See EY Global Tax Alert, OECD releases outcome statement on progress on Pillars One and Two of BEPS 2.0 project, dated 12 July 2023.


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