On 17 July 2023, the OECD/G20 Inclusive Framework on BEPS (“OECD inclusive framework”) published a package of documents on the implementation of the Pillar Two global minimum tax rules (“Pillar Two”). The package includes:
- additional administrative guidance for the implementation of OECD model rules including two new safe harbors,
- A finalized GloBE information return (“information return”), and
- Model treaty articles to implement a Subject to Tax Rule(“STTR”)
These include some key updates that will be welcomed by businesses, such as:
- A one-year deferral of the UTPR for parent country profits where the tax rate is at least 20% (particularly important for, for example, US-parented groups). This is to accommodate countries while they introduce their legislation;
- The release includes additional guidance on the treatment of tax credits, most notably expanding the reach of Qualifying Refundable Tax Credits, which appears to – at least partially – address US concerns; and
- Some simplification of the information required for the information return for Pillar Two.
- The STTR rules exclude certain payments, with the exception of interest and royalty payments, that are made to a recipient that earns a markup of 8.5 percent or less on its income, as the OECD deems the profit shifting risk in those situations limited
- Further for STTR, a materiality threshold for aggregate payments from a source jurisdiction should be put in place based on total payments of (i) EUR1 million for economies with a GDP over EUR40 billion and (ii) EUR250,000 for economies with a GDP below EUR40 billion.