OECD Publishes Commentary on GloBE Rules

OECD Publishes Commentary on GloBE Rules

The OECD Inclusive Framework on March 14 released the Commentary on the Global Anti-Base Erosion (GloBE) rules, along with illustrative examples, providing detailed and comprehensive guidance on the operation and intended outcomes of the Model GloBE rules published in December 2021.

The announcement includes a request for input on the implementation framework for the model GloBE rules and commentary through a public consultation process. Comments must be received by April 11, 2022.



The purpose of the GloBE rules is to limit tax competition by ensuring that large multinational enterprise (MNE) groups pay a minimum level of tax in each of the jurisdictions where they operate. The GloBE rules propose to do this by implementing a “top-up tax” on an MNE group’s “low-taxed income” – that is, profits arising in jurisdictions where the effective tax rate is below the proposed minimum rate of 15%.



The OECD has set an ambitious target of early 2023 for each of its member jurisdictions to implement the GloBE rules. A number of jurisdictions, including the EU and the UK, have already begun the process to meet this deadline through draft legislation, consultation processes and other announcements.

However, the EU Economic and Financial Affairs Council (ECOFIN) is scheduled to meet on March 15 to discuss changes to the draft EU Directive published on December 22, 2021, that would implement the OECD’s two-pillar framework in the EU members states. Among the modifications to the draft directive the ECOFIN is expected to consider is a proposal to defer the implementation of the rules in the EU to December 31, 2023, at the latest. 



Overview of Model Rules

As referenced above, the Pillar Two model rules are designed to ensure that large MNEs (organizations with consolidated global revenue over EUR 750 million) pay a minimum effective tax rate of 15% on the income arising in each jurisdiction where they operate. 

The model rules require MNEs to identify the countries where their constituent entities that have undertaxed income (taxed at less than 15%), based on the “taxable” income (determined under the GloBE rules) compared to the adjusted covered taxes. Any profit from the MNE’s constituent entities located in low-tax jurisdictions is subject to an additional top-up tax that is applied through three principal mechanisms:

  • A domestic top-up tax (if the low-tax jurisdiction introduces it);
  • Two interlocking sets of rules: (1) the IIR, under which taxing rights to the undertaxed amounts are allocated to the group’s ultimate parent entity (UPE), or the next highest parent company if the UPE has not adopted the IIR, or a partially owned parent company; and (2) the “undertaxed payments rule” (UTPR), which allocates taxing rights over the undertaxed amounts to other entities within the MNE group that have adopted Pillar Two based on the location of employees and assets; and
  • The “subject to tax rule” (STTR), a treaty-based rule that denies deductions or imposes a tax where the income is subject to tax at a rate below 9%.

The model rules set out a process to determine the applicability and impact of the GloBE rules on an MNE group. This process includes:

  • Identifying whether the MNE group is within the scope of the rules;
  • Determining whether the MNE group has low-taxed income in any jurisdiction; and
  • Applying a top-up tax on the low-taxed income through one of the above taxing mechanisms.


How BDO Can Help

BDO can assist multinationals understand, evaluate and model the potential impact of the Pillar Two GloBE regime on their global tax liabilities, and consider structuring options to achieve an efficient tax structure.



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