OECD consolidated commentary on Pillar 2

The OECD has published consolidated commentary, together with consolidated examples, on the OECD’s Global Anti-Base Erosion (GloBE) model rules, which form the main element of Pillar 2.

Commentary to the GloBE Rules was originally released in March 2022. The Commentary explains the intended outcomes under the GloBE Rules, clarifies the meaning of certain terms and illustrates the application of the rules to certain fact patterns. The Consolidated Commentary now published incorporates Agreed Administrative Guidance that has been released by the Inclusive Framework since March 2022 up until December 2023.

Background

Political agreement was reached in June 2021 on a two pillar approach, involving: revised profit allocation and nexus rules (Pillar One); and a global anti-base erosion proposal for a minimum level of taxation (Pillar Two). This was followed by the publication of a "Statement on a Two-Pillar Solution to Address the Tax Challenges Arising From the Digitalisation of the Economy" containing broad details of the agreed components of the Pillars and an implementation plan. In December 2021, the OECD published model rules to assist in the domestic implementation of the Pillar Two minimum global tax rate of 15%. The Pillar Two model rules are designed to provide governments with a template for implementing Pillar Two.

The GloBE rules have the support of over 135 jurisdictions and will ensure large MNEs pay a minimum level of tax on the income arising in each of the jurisdictions where they operate. More specifically, the GloBE Rules provide for a co-ordinated system of taxation that imposes a top-up tax on profits arising in a jurisdiction whenever the effective tax rate, determined on a jurisdictional basis, is below the minimum rate.

Comment

The Consolidated Commentary and examples are designed to provide tax administrations and taxpayers with guidance on the interpretation and application of the GloBE Rules in order to promote a consistent and common interpretation and application of those that will facilitate coordinated outcomes for both tax administrations and MNEs.