Pillar 2 and GloBE: The latest update from the OECD

The OECD offered its latest developments and guidance on the global minimum tax rules and their implications for multinational corporate tax departments — Here’s a brief overview

The 38 member-countries association, Organisation for Economic Co-operation and Development (OECD) has been and continues to be a trusted advisor to the Group of 20 (G20) countries. The OECD has advised and help shape tax policy that impacts certain global policies. In 2016, for example, the OECD and G20 joined forces to create a 15-point action plan, known as the Inclusive Framework, to address Base Erosion and Profit-Shifting (BEPS).

The OECD/G20 Inclusive Framework is a two-pillar solution to address tax challenges arising from the digitalization of the economy. Pillar One focuses on the allocation of taxing rights among jurisdictions, while Pillar Two aims to ensure that multinational enterprises (MNEs) pay a minimum level of tax on profits, regardless of where they operate.

Pillar 2 consists of four interrelated rules: i) the Income Inclusion Rule (IIR); ii) the Undertaxed Payments Rule (UTPR); iii) the Subject to Tax Rule (STTR); and iv) the Global Anti-Base Erosion (GloBE) rules.

The central component of Pillar 2 is the GloBE rules which provide a framework for the application of the IIR and the UTPR. Its function is to impose top-up tax on any MNE that is subject to an effective tax rate that is below a certain threshold, which is yet to be agreed upon by the members of the Inclusive Framework. The GloBE rules apply to MNEs that had annual consolidated revenue of more than €750 million in the previous fiscal year.