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April 29, 2022

OECD holds public consultation meeting on Implementation Framework for Pillar Two GloBE Rules

Executive summary

On 25 April 2022, the Organisation for Economic Co-operation and Development (OECD) held a public consultation meeting on the Implementation Framework for the Pillar Two Global Anti-Base Erosion (GloBE) Rules (the Implementation Framework). The four questions on which the OECD/G20 Inclusive Framework on BEPS (the Inclusive Framework) was seeking input were outlined in the invitation to provide comments, which was released on 14 March 2022 (for background, see EY Global Tax Alert, OECD releases Commentary and illustrative examples on Pillar Two Model Rules, dated 21 March 2022).

During the public consultation, four panels discussed the input provided by commentators in response to the questions posed by the Inclusive Framework. The meeting focused on the mechanisms necessary to ensure that tax administrations and Multinational Enterprises (MNEs) can implement and apply the GloBE Rules in a consistent and coordinated manner. Additionally, at the end of the session, the OECD Secretariat addressed some technical questions related to the GloBE Rules.

According to the implementation plan released in October 2021, the GloBE Implementation Framework will be released by the end of 2022 at the latest.

Detailed discussion


Following the release of the GloBE Rules and Commentary on 14 March 2022, the Inclusive Framework launched a public consultation in connection with the work to be undertaken on the GloBE Implementation Framework. With this, the Inclusive Framework intends to address administration, compliance and coordination matters related to the GloBE Rules. Comments were invited to address, in particular, the following four questions:

  1. Do you see a need for further administrative guidance as part of the Implementation Framework? If so, please specify the issues that require attention and include any suggestions for the type of administrative guidance needed.
  2. Do you have any comments relating to filing, information collection including reporting systems and record keeping? In particular do you have any views on how the design of the information collection, filing obligations and record keeping requirements under GloBE could be designed to maximize efficiency, accuracy and verifiability of information reporting while taking into account compliance costs?
  3. Do you have any suggestions on measures to reduce compliance costs for MNEs including through simplifications and the use of safe-harbors?
  4. Do you have views on mechanisms to maximize rule coordination, increase tax certainty and avoid the risk of double taxation?

The deadline for written submissions was 11 April 2022. In total, 75 comments were provided by professional service providers, businesses, industry associations, and individuals. The EY comment letter submitted to the OECD can be found here.

The public consultation meeting

On 25 April 2022, the OECD hosted a public consultation meeting to discuss the comments provided on the Implementation Framework. The subject matter of this consultation did not extend to the policy choices reflected in the GloBE Rules or the Commentary but rather focused on how to facilitate the implementation and administration of the GloBE Rules.

The agenda of the meeting included the following:

  1. Panel One: Perspectives on implementation priorities
  2. Panel Two: Information reporting and exchange
  3. Panel Three: Simplifications and safe harbors
  4. Panel Four: Coordination and tax certainty
  5. Q&A session

At the start of each session, the OECD Secretariat provided an overview of the comments received on each of the questions raised.

On the question of further administrative guidance, the OECD Secretariat indicated that many stakeholders stressed the need for further clarity on the legal status of the Commentary, release of guidance on a rolling basis and guidance on the interaction of the US Global Intangible Low-Taxed Income regime with the GloBE Rules. In addition, the Secretariat noted that the comment letters raised issues with respect to a range of other topics, including transfer pricing adjustments, tax credits, and deferred tax accounting.

On the question on information collection and reporting, the OECD Secretariat noted that the common views expressed by stakeholders included the need for a Standardized GloBE Information Return, centralized filing, an effective exchange of information framework that includes a Qualifying Competent Authority Agreement to provide data safeguards, confidentiality and appropriate use conditions, and a grace period during which good-faith mistakes should not trigger any penalty.

On the question of safe harbors, the OECD Secretariat indicated that the common views expressed by stakeholders included a request for a safe harbor based on Country-by-Country Reporting (CbCR) data and a mechanism that would ensure that no Effective Tax Rate calculations would be required for jurisdictions that have a Qualified Domestic Minimum Top-up Tax (QDMTT).

On the question of rule coordination and tax certainty, the OECD Secretariat indicated that the common views expressed by stakeholders included the need to develop a centralized process conducted by the Inclusive Framework to determine whether a rule is considered "qualified," establish a coordinated approach for audits, develop an early certainty process (inspired by Pillar One) and introduce a binding dispute resolution mechanism founded in a Multilateral Convention.

Panel discussions

The first panel discussed some of the key issues that need to be addressed from the perspective of tax administrations and MNEs in relation to the implementation and administration of the GloBE rules.

One of the participants on this panel was an official from the Canada Revenue Agency (CRA). The participant indicated that Canada has already established a task force to address the domestic implementation of Pillar One and Pillar Two. However, as with many tax administrations, the ambitious implementation timeline is a concern for the CRA. According to the Canadian official, attention should be given to achieving consistency in the implementation (e.g., consistent return formats and information requested), taking into account that under the GloBE Rules a single return submitted with one tax administration is expected to be exchanged globally. In that respect, it was noted that coordination and consistency should not be sacrificed for quick results. Moreover, the CRA has started the development of a draft for a Canadian Pillar Two return to facilitate the analysis of the GloBE Rules.

When looking at the implementation of the GloBE Rules, another concern of the CRA is the interaction of the GloBE Rules with existing domestic rules and processes due to the complexities involved. Finally, recognizing the need for dedicated resources for tax administrations, the Canadian official suggested setting up multilateral training opportunities for tax administration employees, which would eventually help increase the level of consistency regarding implementation in the future.

Also on this panel, a representative of the African Tax Administration Forum (ATAF) provided input from the perspective of the ATAF membership. According to the representative, many African members of the Inclusive Framework remain reluctant about the implementation of the GloBE Rules. In addition, jurisdictions that are not Inclusive Framework members have begun to recognize that they will also be affected by the GloBE Rules, because the application of the rules by other jurisdictions will have an impact on their existing tax policies, in particular in relation to tax incentives.

Further, the ATAF representative expressed concern about the agreed implementation timeframe and the limited resources of African tax administrations. The lack of resources puts pressure on African countries to prioritize their work and to choose among a number of initiatives awaiting implementation. Due to the very limited instances of Ultimate Parent Entities (UPEs) of in-scope MNE groups in many African countries, it may be that only a few African countries implement the Income Inclusion Rule (IIR). The representative also noted the expectation that very few African countries will consider introducing the Under-Taxed Payment Rule (UTPR). However, in order not to give up tax revenue to be collected by other countries at the level of the UPE or other entities of an MNE group, African countries are considering the introduction of a QDMTT. In that respect, ATAF has requested the OECD to provide additional guidance on the drafting of such a provision and its relation to the IIR.

The second panel explored how information collection, reporting and exchange systems and standards could be designed to maximize efficiency and accuracy while minimizing compliance costs. Panel members described the challenges that MNEs would face in collecting the information required for preparing the GloBE Information Return and stressed the need for simplified filing procedures.

The third panel discussed measures to reduce compliance costs, including the development of safe harbors and other simplifications. One of the panelists outlined the safe harbors that were commonly suggested by commentators, including: (i) a simplified Effective Tax Rate (ETR) computation using CbCR data; and (ii) a safe harbor based on the identification of high-tax jurisdictions. Other suggestions include a safe harbor based on a substance carve-out, a safe harbor that relies on statutory corporate tax rates and a safe harbor based on a de minimis exclusion.

The final panel focused on the importance of coordinated outcomes in the implementation of the GloBE Rules. Participants identified and described approaches to maximize rule coordination, increase tax certainty and avoid the risk of double taxation. Panelists also discussed possible dispute resolution mechanisms.

Q&A session

Before closing the meeting, the OECD Secretariat addressed 10 technical questions that were selected from prior submissions by the audience. The OECD Secretariat noted that the responses provided had not been discussed by the members of the responsible Working Party and should therefore be taken as initial thoughts by the OECD Secretariat, but the discussion nevertheless provided interpretations of provisions in the GloBE Rules and Commentary. The questions included the following:

The provisions of Article 4.1.3(a) of the GloBE Rules exclude the current tax expense with respect to income excluded from the computation of GloBE Income or Loss under Chapter 3. The Commentary includes an example that indicates that the rule applies to taxes attributable to income from an Entity accounted for using the equity method. Losses from an Entity that do not count under the equity method are also excluded from the computation of GloBE Income or Loss. Are the tax effects of those losses also excluded from the determination of the Covered Taxes? (Question #2 addressed by the OECD Secretariat)

The OECD Secretariat indicated that, fundamentally, the scope of the GloBE Rules is based on consolidation requirements. The measure of the GloBE Income or Loss in a jurisdiction is based on the income or loss of the entities that are members of the same consolidated group.

As the OECD Secretariate elaborated, when talking about investments in entities accounted for using the equity method, those investments are in entities that are not part of the MNE Group. Accounting rules in some jurisdictions provide for alternative methods of applying the equity method for certain types of investments. But when the equity method is applied to investments according to the relevant accounting standard, the income or loss associated with those investments is excluded from the GloBE Income or Loss consistent with the consolidation requirements. Because the income or loss is not included in the calculation of the Globe Income, it would be inconsistent to include the tax consequences in the ETR computation.

The OECD Secretariat explained that the purpose of Article 4.1.3(a) is to "back out" all the income tax consequences of holding the investment. It is expected that in many cases, there will not be any income tax consequences of holding the investment that will be taken into account by the MNE Group, but in some cases, it may be, and in such cases, the tax consequences should also be eliminated if there is any connection to losses.

The Globe Rules treat Qualified Refundable Tax Credits (QRTCs) as income similar to a government grant. Other tax credits are treated as reductions to Covered Taxes, which has a more significant impact on the ETR calculation. There are also other types of credits that are economically equivalent to grants, such as transferable credits. Are there any considerations that these credits should be treated the same as a QRTC? (Question #3 addressed by the OECD Secretariat)

The OECD Secretariat explained that the treatment of QRTCs generally follows the financial accounting treatment. Following the accounting treatment, refundable credits are economically equivalent to grants or subsidies.

The OECD Secretariat stated that transferable credits might be treated as QRTCs under the GloBE Rules because the Commentary defines ''Refundable'' as the amount of the credit that has not been applied already to reduce Covered Taxes and is payable either as cash or a cash equivalent. If a credit is transferable, the government will certainly be in a position where it has to provide the economic benefit of that credit pursuant to the operation of the transfer. In other words, the credit is not going to expire or become a reduction in tax, but it will be transferred to somebody that can use it. From the perspective of the taxpayer and the government, transferable credits seem similar to the functional equivalent of a QRTC. The OECD Secretariat noted that these specific issues have not yet been explored by the Working Party. In analyzing the issue further in the context of the Implementation Framework, it should be recognized that governments use a wide range of mechanisms to provide grants and tax credits.

The provisions of Article 4.2.1(a) define Covered Taxes as "Taxes recorded in the financial accounts of a Constituent Entity." Are current tax expenses and deferred tax expenses items that are booked as consolidation adjustments also recognized for Pillar Two purposes? (Question #4 addressed by the OECD Secretariat)

The OECD Secretariat confirmed this. In its view, current and deferred tax expenses that arise in respect of the income or profit of the Constituent Entity booked through the consolidation adjustments, and therefore only identifiable in the consolidated accounts and not in the accounts of the Constituent Entity, are recognized for GloBE purposes provided they can be reliably and consistently traced to the relevant Constituent Entity. The OECD Secretariat, therefore, is of the view that these expenses do not have to be recorded in the stand-alone financial accounts at the level of the Constituent Entity.

The Blueprint released by the OECD in October 2020 contemplated the carryforward of losses into the GloBE regime regardless of whether such losses have been incurred in a taxable jurisdiction. Can an MNE Group take into account losses incurred before the introduction of the GloBE rules in a jurisdiction that does not have a Corporate Income Tax (CIT)? (Question #5 addressed by the OECD Secretariat)

The OECD Secretariat indicated that the provisions of Article 9.1.1 provide for a transition rule that allows MNEs to bring historic deferred tax attributes, including losses and tax credits, into the GloBE Rules upon transition. However, where a jurisdiction does not impose corporate income tax, the taxpayer generally will not record deferred tax assets or liabilities with respect to losses incurred in that jurisdiction. Accordingly, the losses will not be brought into the GloBE regime, given there are no deferred tax attributes associated with the losses.

If a Constituent Entity in a jurisdiction without a corporate income tax sells an asset with a gain to a related party in a high-tax jurisdiction after 30 November 2021, can the deferred tax attributes with respect to that transaction be taken into account for GloBE purposes? (Question #6 addressed by the OECD Secretariat)

The OECD Secretariat indicated this is not the case. The OECD Secretariat explained that Article 9.1.3 operates to protect the integrity of the GloBE Rules by denying a step-up in the basis of the asset for GloBE purposes with respect to transactions during the transition period (after 30 November 21 and before the GloBE Rules are implemented). These rules impose an additional compliance burden on businesses, and that is why the restriction does not apply to inventory. The Working Party viewed this adjustment for intragroup transfers after 30 November 2021 as necessary to protect the integrity of the GloBE Rules. If the asset transfer takes place after the GloBE Rules are effective, the gain from the sale of that asset would be included in the GloBE tax base and would create a corresponding Top-up Tax liability. By requiring the transferee to record the historic basis of tax attributes, this gain is preserved and triggered in the next transfer of the asset when (or after) the GloBE Rules are effective.

Is the use of net operating losses (loss carryforward) considered a commensurate increase in the taxable income of the high-tax counterparty when applying the provisions of Article 3.2.7 on intragroup financing arrangements? (Question #7 addressed by the OECD Secretariat)

The OECD Secretariat explained that the objective of the provisions of Article 3.2.7 is also to protect the integrity of the GloBE Rules. These provisions apply when there is an increase in the amount of expenses taken into account when calculating the GloBE Income or Loss of a Low-Taxed Constituent Entity with no commensurate increase in the taxable income of a high tax counterparty, and this is an intercompany arrangement.

The OECD Secretariat explained that whether there is a commensurate increase in the taxable income of the high-tax counterparty depends on whether the relevant attributes (i.e., the carry forward of a denied interest expense deduction or a domestic loss carry forward) would otherwise be used by the taxpayer for the arrangement being tested under Article 3.2.7. This concept is illustrated with respect to denying interest expense carryforwards (paragraph 127 Commentary and Example By analogy to the reasoning in the example, if the high-tax counterparty uses a loss carryforward that has a valuation allowance or an accounting recognition adjustment against it, meaning that the taxpayer did not expect it to be utilized, then there is no commensurate increase in the taxable income of the high tax counterparty over the expected duration of the arrangement. On the other hand, if the loss carryforward would otherwise be used by the taxpayer, there may be a commensurate increase in the income of the high-tax counterparty. And this is because when the income is earned, the loss carryforward would otherwise have been applied against it, and such income is now additional taxable income in the jurisdiction. the OECD Secretariat further noted that additional guidance on Article 3.2.7. is being considered.

The GloBE Rules prescribe a recast of deferred tax liabilities (DTLs) at the Minimum Rate of 15%. How does this recast affect the ETR computation? And what is the policy rationale behind this rule? (Question #10 addressed by the OECD Secretariat)

The OECD Secretariat indicated the recast of Article 4.4 was included to prevent an excess DTL from being used to shield other income from Top-up Tax. When the tax liability is paid, or the DTL reverses, the taxpayer will include in its Covered Taxes computation the difference between the DTL calculated at 15% and the DTL as recorded in the financial account. And when that happens, the excess DTL is effectively included in the Covered Taxes and ETR computation, and it is available to shield other tax-exempt income from potential Top-up Tax liability. The difference between the recast and the tax paid is not lost but simply taken into account for the year when the tax is paid, or the DTL is reversed.

The OECD Secretariat stated that the mechanisms considered in the October 2020 Blueprint were based on a carryforward approach. Following business input, the Inclusive Framework agreed to replace this approach by recognizing deferred tax accounting.

The OECD Secretariat noted that the Working Party had a discussion about giving a credit under the GloBE Rules upfront for taxes that are going to be payable in the future. As the outcome of that discussion, the Working Party decided to: (i) limit the amount in the upfront credit provided to shelter the timing differences with the balance being recognized at the time when the tax liability is paid or reversed; and (ii) place a time limit on those timing differences to avoid claiming a credit in relation to a tax liability that may not be paid in the future.

The OECD Secretariat noted that for certain categories of items (recapture exception accrual), the GloBE Rules do not provide a time limit. There is a list of items in Article 4.4.5 where there is no recapture framework in place. The OECD Secretariat explained that these items were identified based on the fact that they are likely to be either long-term or material items, and they will certainly reverse in the future. The OECD Secretariat acknowledged that questions of interpretation will arise for the residual categories that do not fall under the exception of Article 4.4.5. Finally, the OECD Secretariat stressed that there are significant categories of deferred tax expenses that are not subject to any of these restrictions.

The three remaining questions addressed by OECD Secretariat related to: (i) rule ordering and the QMDTT (Question #1); (ii) whether Partially Owned Parent Entities (POPEs) have access to the information needed to apply the IIR to all the relevant Constituent Entities (Question #8); and (iii) mobile assets and employees (Question #9).

On the question on rule ordering, the OECD Secretariat confirmed the priority of the QMDTT over the IIR and UTPR stems from two key principles underlying the GloBE rules: that source jurisdictions have the first right to tax in combination with the substance based carve-out. On the question on POPEs, the OECD Secretariat stated that all companies for which information is required are consolidated at the level of the UPE for financial reporting purposes. Given this starting point, the assumption is that this information is available within the group and therefore also to the POPE. On the question on mobile assets and employees, the OECD Secretariat noted that there may be cases where the location of assets or employees is difficult to determine (e.g., mobile by nature, or an employee working across multiple jurisdictions). The Inclusive Framework is discussing this matter for development of further guidance.


The public consultation provided a valuable opportunity for businesses to share practical perspectives on compliance and simplification matters in the development of the GloBE Implementation Framework. The consultation meeting highlighted how complex the GloBE Rules are and the importance of a detailed Implementation Framework including simplifications, processes for coordinated interpretations and mechanisms to provide tax certainty. The Inclusive Framework is expected to present the Implementation Framework by the end of this year, which provides only a short timeframe for its development. The OECD Secretariat indicated during the consultation meeting that further refinements to the Implementation Framework will need to continue to be made after the implementation of the GloBE Rules by Inclusive Framework member jurisdictions.

It is important for businesses to evaluate the potential impact of the global tax changes both on their tax positions and on their data and compliance processes and systems. Businesses should also monitor activity in relevant jurisdictions related to the implementation of the global minimum tax rules into their domestic tax legislation.


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

Ernst & Young Belastingadviseurs LLP, Rotterdam

Ernst & Young Belastingadviseurs LLP, Amsterdam

Ernst & Young Limited (New Zealand), Auckland

Ernst & Young LLP (United States), New York

Ernst & Young LLP (United States), Washington, DC