On 17 July 2023, the OECD/G20 Inclusive Framework on BEPS released a package of documents as part of its continuing effort to implement the Two-Pillar Solution to Address the Tax Challenges Arising from the Digitalization of the Economy. On Pillar Two, this included further Administrative Guidance (including two new safe harbors) and the GLoBE Information Return, together with a report on the Subject to Tax Rule including a model treaty provision and accompanying commentary. We set out below our experts’ insights on these publications.

On 2 February 2023, the OECD/G20 Inclusive Framework on BEPS released technical guidance to assist governments in the local implementation of the Global Anti-Base Erosion Model Rules (“GloBE Rules”). This should help governments to correctly apply the GloBE Rules to large Multinational Enterprises from the start of 2024. Moreover, it aims to ensure a coordinated and harmonized implementation of the GloBE Rules. The Administrative Guidance takes the form of a modification to the original version of the Commentary that was issued in March 2022.

Now may be a good time for multinational enterprises with subsidiaries in low or no tax jurisdictions to consider the amount of economic substance they have in these jurisdictions: to ensure compliance with economic substance rules, generally enacted from 2019 onwards, largely in response to the requirements of the OECD Forum on Harmful Tax Practices and the EU Code of Conduct Group; and to alleviate the impact of the Pillar 2 rules, which will begin to apply from 1 January 2024, multinational groups should consider substance for the “Substance-based Income Exclusion”.

Exactly one year after publication of the Pillar 2 Model GloBE Rules on 20 December 2021, the OECD Inclusive Framework on BEPS published an implementation package as part of its ongoing efforts to develop the Pillar 2 Implementation Framework. The Pillar 2 documents released contain (i) guidance on Safe Harbours and Penalty Relief, and (ii) public consultations on the GLoBE Information Return and Tax Certainty for the GloBE Rules.

On 14 March 2022, the OECD published its long awaited commentary to the model GloBE rules. At more than 200 pages, the commentary will take some time to fully absorb. However, it appears that the guidance still leaves some fundamental issues unanswered, such as how the GloBE rules co-exist with the US’s GILTI regime, and what simplifications/safe-harbors will be available to taxpayers to reduce their compliance burden. It is expected that this will be further addressed in the implementation framework, for which a public consultation was launched on the same day.