Pillar Two

The OECD/G20 Inclusive Framework on BEPS (IF) published the fourth set of Administrative Guidance (the guidance) on the Global Anti-Base Erosion Model Rules (GloBE rules) of Pillar Two on 17 June 2024, intending to clarify the operation of the GloBE rules. Also on 17 June, the OECD released supplementary guidance on Amount B of Pillar One (the supplementary guidance) that includes definitions of ‘qualifying jurisdictions’ to apply the operating expense cross-check and data-availability mechanism.

Countries worldwide have begun enacting procedures that require in-scope groups and entities to register before making Pillar Two payments. Before filing a GloBE Information Return (GIR) or, if applicable, a Qualified Domestic Minimum Top-up Tax (QDMTT) return, certain countries have requested advance registration and assigned taxpayer identification numbers. Taxpayers should be keenly aware of the varying Pillar Two registration deadlines.

The OECD on 25 April 2024 published Consolidated Commentary (Commentary) to the Pillar Two Global Anti-Base Erosion (GloBE) Model Rules that incorporates all agreed Administrative Guidance that has been released by the Inclusive Framework (IF) from March 2022 through December 2023.

In this Pillar Two webinar session held on Thursday 18 April, Matt Ryan, UK Pillar Two Leader, was joined by Andy Wiggins, our Global Tax Accounting Leader and specialists from our International Tax Practice to discuss three key areas, as well as exploring how UK-parented businesses are implementing the necessary steps for Pillar Two financial reporting through to compliance. Register below to watch the recording.

At its last meeting in 2023, the Swiss Federal Council decided on Switzerland’s roadmap for implementing the global minimum tax into domestic law.

The OECD Secretariat published the latest set of Administrative Guidance on the Global Anti-Base Erosion Model Rules (GloBE rules) of Pillar Two on 18 December 2023 intended to clarify the operation of the GloBE rules. This is the third set of administrative guidance, and along with the guidance released in February and July 2023 it will be incorporated into a revised version of the GloBE Commentary , which, according to the OECD, will be released in 2024. This latest release is the final set of guidance supplementing and clarifying the Pillar Two rules before they come into effect in many countries from 1 January 2024. Further guidance is expected in 2024 across a range of issues.

The Hungarian Ministry of Finance published on 18 October the draft legislation for public consultation to implement EU Directive 2022/2523/OECD Model Rules on the global minimum tax (GloBE). The draft legislation closely aligns with the OECD Model Rules, Commentary, and Administrative Guidance published thus far.

Cyprus has consented to the Pillar Two Transitional CbCR Safe Harbour. In addition, the Cyprus Parliament recently voted to amend Article 9(1)(d) of the Cyprus Income Tax Law, which grants a tax deduction for expenditures incurred for scientific research and R&D. Finally, the Ministry of Finance announced that the Cyprus-Netherlands tax treaty will be effective 1 January, 2024.

On 3 October 2023, the OECD Inclusive Framework announced the conclusion of negotiations on a multilateral instrument (MLI) to implement the Pillar Two Subject to Tax Rule (STTR). The STTR allows countries to increase taxes on certain cross-border payments (not including dividends) among associated entities under a bilateral tax treaty where the nominal rate in the recipient country is below 9% (adjusted for tax base reductions such as tax exemptions and tax credits).

On June 20, 2023, the UK's Finance (No. 2) Bill 2023 was substantively enacted for IFRS and UK GAAP purposes, marking a significant milestone in the country's adoption of the OECD Pillar Two regime. This article outlines the reporting requirements and challenges for groups to prepare for the upcoming implementation of Pillar Two rules, including disclosures and potential future changes.

The OECD/G20 Inclusive Framework on BEPS (IF) published a range of documents relating to the Two-Pillar solution on 17 July 2023, one of which was a second set of Administrative Guidance on the Pillar Two GloBE Model Rules . This release follows the publication of the first set of Administrative Guidance in February 2023. The guidance covers a range of issues where stakeholders sought additional clarity, including general currency conversion standards for the GloBE Rules, guidance on tax credits, the Substance Based Income Exclusion (SBIE), Qualified Domestic Minimum Top-up Tax (QDMTT) and safe harbours. The guidance, including more detailed examples, will be incorporated into a revised version of the Commentary that will be released later this year. Also released as part of the OECD package was an updated version of the GloBE Information Return (GIR).

On 17 July 2023 the OECD Inclusive Framework (IF) released a report with model treaty text to give effect to the Subject-to-Tax-Rule (STTR), together with an accompanying commentary explaining the purpose and operation of the STTR. The OECD Secretariat also published a summary of the STTR, titled “The Subject to Tax Rule in a Nutshell,” to assist in understanding the STTR model provisions.

While there is uncertainty around Pillar One (both on the timeline and on whether a critical mass is achievable), many countries have begun implementing Pillar Two and the OECD IF has now released more substantive guidance in key areas. Watch our webcast replay from 27 July for the latest updates on the OECD's two-pillar solution.

On 17 July 2023, the OECD/G20 Inclusive Framework on BEPS (IF) released four important documents related to Pillar One and Pillar Two and a Progress Report to the G20 Finance Ministers and Central Bank Governors for their meeting on 17-18 July. These publications follow last week’s IF plenary meeting and resulting “Outcome Statement,” which provided an update on the status and timeline for implementing Amount A and B of Pillar One and the Pillar Two Subject-to-Tax Rule (STTR).

On 12 July 2023, the OECD published an Outcome Statement that provides an update on the status and timeline for implementing the two Pillars of the project addressing the tax challenges arising from the digitalisation of the economy. The Outcome Statement has been signed by 138 of the 143 members of the Inclusive Framework (IF). While the Outcome Statement notes progress made on both pillars, it also acknowledges that differences remain between countries. Importantly, the timeline for releasing a multilateral convention (MLC) for Amount A of Pillar One has been delayed to the second half of 2023 (with a goal of it entering into force during 2025).

Swiss voters approved the new constitutional provision on the implementation of the OECD/G20 project on the taxation of large corporate groups (BEPS 2.0 project) in the public vote on 18 June 2023.

This In the loop and In depth provide companies with what the Global taxation means for companies now and what action needs to be taken.

In this webcast held on Thursday 22 June, PwC’s Matt Ryan, Rob Gooding and Jos Bhasker provided an update on Pillar Two implementation globally, and proposed some practical steps organisations can take to overcome some of the key challenges they are facing. They also walked through the technology solutions being developed for compliance and reporting.

The Netherlands legislative proposal to transpose Pillar Two into the Dutch company tax system, titled ‘Minimum Tax Act 2024 (Pillar Two),’ was submitted to the Dutch Parliament on 31 May. The Netherlands is the first country within the European Union to release its domestic Pillar Two legislation. Parliament and the Upper House will discuss the legislative proposal in the coming months. The legislative bill is expected to enter into force on 31 December 2023.

House Ways and Means Committee Chairman Jason Smith (R-MO) and all Ways and Means Republicans recently introduced the Defending American Jobs and Investment Act. The bill appears to take aim at the OECD two-pillar solution and at countries that introduce digital service taxes (DSTs), with the extraterritorial tax focusing on the undertaxed profits rule (UTPR) and the discriminatory tax focusing on DSTs.

The Australian Treasurer Dr Jim Chalmers handed down his second budget on 9 May 2023. The 2023-24 Federal Budget contained a wide range of tax and superannuation related measures and implementation of Pillar Two of the Organisation of Economic Cooperation and Development / G20 Two-Pillar Solution to address digitalisation of the economy.

You have probably been inundated with Pillar 2 information but I wanted to share an insight into an area which could impact June year end or December half year reporting:

Trusts can have filing and tax payment obligations under the Pillar Two rules, and whether groups are in scope is determined on the basis of a deemed accounting consolidation, which can be difficult to apply to investments owned by trusts.

What will an additional set of rules in the form of a domestic top-up tax (DTT) mean for your business?

On this webcast from 25 April, our tax policy specialists reviewed unresolved technical issues, as well as the administrative guidance to date. They also discussed how countries are implementing the rules, and how businesses can deal with what we know and don’t know. In the latter category, one big question is what is being built into the regime for increasing tax certainty during the transition and beyond?

This TP Talks episode is part 3 of a three-part series on Pillar Two, where Ugo Cannavale (Transfer Pricing Leader for PwC Italy), Kartikeya Singh (Transfer Pricing Principal in PwC’s US National Tax Services practice), and Giorgia Maffini (Transfer Pricing and Tax Policy Director with PwC UK) discuss the latest Pillar Two developments, country level developments, and what companies need to prioritize from a transfer pricing perspective.

The latest addition to our series of brief insights into the workings of the UK and supranational bodies reviewing the taxation of digitalisation of business.

On 23 March 2023 as set out in the Spring Finance Bill, updated draft UK legislation was released for an income inclusion rule (“IIR”) and new draft legislation for a domestic minimum top-up tax, as part of the latest installment of the UK’s implementation of the OECD’s Pillar Two project.

On 31 March 2023, Ireland’s Department of Finance published a Pillar Two feedback statement.

Germany's Federal Ministry of Finance (MoF) published a draft law on 20 March to implement the ‘Pillar Two’ Directive ensuring a global minimum taxation for multinational groups and large domestic groups in the European Union (the so-called Minimum Tax Directive Implementation Act - MinBestRL-UmsG).

Pillar Two brings unprecedented changes to the global tax system, impacting large multinational companies that operate under the reformed international tax framework. We recently published our Pillar Two Data Input Catalog, which highlights the urgency for taxpayers to start preparing for Pillar Two, outlining anticipated divergences in Pillar Two rules, calculation complexities, and considerations in developing an extensive data strategy.

The OECD released Administrative Guidance (‘guidance’) on the Pillar Two Global Anti-Base Erosion Rules (GloBE Rules) on 2 February. The guidance was approved by the OECD/G20 Inclusive Framework on BEPS (IF) and is therefore not subject to public consultation. The guidance primarily focuses on (some but not all) previously unaddressed areas under the GloBE Rules.

The GloBE Model Rules require MNE groups to file a standardised GloBE information return (GIR) in each relevant jurisdiction that has introduced the GloBE rules. The public consultation document on the GIR indicates that the ultimate objective of the GIR is to develop a consistent and transparent set of standards for information collection that preserves consistency and certainty of outcomes for MNE groups, while avoiding a significant increase in taxpayer and tax administrations’ compliance burdens.

Given the complexity of the Pillar Two rules and the differences that could arise in the interpretation or application of the rules among jurisdictions, the OECD started working on exploring mechanisms to provide further tax certainty with respect to the GloBE rules. This public consultation on Pillar Two – Tax Certainty for the GloBE Rules seeks input from stakeholders with respect to the scenarios where differences in interpretation or application of the GloBE rules between two or more jurisdictions may arise.

Unlike the other Pillar Two releases on Tax Certainty and the GloBE Information Return, the rules on safe harbours and penalty relief are not subject to a public consultation process. This release takes the form of an Inclusive Framework approved publication.

On 15 December, the EU Council formally adopted the EU minimum tax Directive by written procedure. The written procedure ended with this unanimous agreement, notwithstanding the fact that Hungary abstained from the final vote, and Sweden made a written observation on a specific provision of the Directive. The Directive will enter into force on the day following its publication in the Official Journal of the European Union. Member States shall transpose the Directive into their domestic law by 31 December 2023. All Member States voted in favour of the accompanying Council Statement. This outcome follows a week of speculation on the deal after Poland reserved its support until yesterday’s EU Council meeting.

On 12 December 2022 the Committee of the Permanent Representatives of the Governments of the Member States to the European Union (COREPER) agreed in principle on the introduction of a global minimum taxation proposal by the EU Member States. The COREPER decided to advise the Council to adopt the draft Pillar Two Directive and approved the related Council statement. A written procedure for formal adoption of the Directive is expected to conclude on 14 December.

South Korea's budget bill for 2023, approved by parliament on December 23, includes the Korean rules on a global minimum tax (the GloBE Rules).

Japan released the 2023 tax reform proposals including a legislative outline to implement a global minimum corporate tax based on the Global Anti-Base Erosion Model Rules.

The Swiss Federal Council recently launched a public consultation concerning the draft ordinance laying out the material aspects of the Pillar Two implementation in Switzerland. Interested parties have until 17 November to submit comments to the Swiss administration.

For inclusion in Finance Bill 2022/23, the UK has released draft legislation to introduce the OECD’s Pillar Two Model Rules into UK law. The draft legislation includes an Income Inclusion Rule (IIR), to be known in the UK as the Multinational Top-up Tax, which will apply to accounting periods beginning on or after 31 December 2023.

As part of 2022 tax reform, the Korean Ministry of Strategy and Finance (MOSF) recently announced the introduction of draft domestic legislation for a global minimum tax. Korea’s summary draft rules, released in Korean, correspond closely to the OECD’s Pillar Two Model Rules, which was led by the OECD / G20 and has been agreed upon by 141 countries in the Inclusive Framework. Detailed legislation is expected in December.