On December 15, 2023, the Organization for Economic Co-operation and Development (OECD) released administrative guidance (the 2023 December Administrative Guidance) concerning implementation of the Pillar Two global minimum tax (GloBE tax) that will be integrated into a revised version of the original commentary relating to the OECD Model Rules released on December 20, 2021. The revised commentary of the OECD Model Rules is expected be released on a later date during the 2023 calendar year. The 2023 December Administrative Guidance represents the third set of administrative guidance released by the OECD this year as it comes in direct response to the administrative guidance released in July 2023 which introduced new safe harbour tests, clarified certain positions with respect to Qualified Domestic Minimum Top-up Taxes (QDMTTs), and other areas (the 2023 July Administrative Guidance). Prior to the 2023 July Administrative Guidance, the OECD released its first set of guidance in February 2023 which addressed fundamental considerations with respect to QDMTTs and blended controlled foreign corporation (CFC) tax regimes (the 2023 February Administrative Guidance). The 2023 December Administrative Guidance contains the following:
- Commentary on the role of purchase price accounting adjustments considered in financial statements when calculating the Transitional CbCR Safe Harbour tests;
- Additional guidance with respect to applying the Transitional CbCR Safe Harbour tests specifically with respect to applying the routine profits test and the treatment of hybrid arbitrage arrangements;
- Discussion concerning the determination of the consolidated revenue threshold for a multinational enterprise group (MNE group) with certain mismatches in fiscal years between its ultimate parent entity (UPE) and constituent entities as well as mismatches between tax years and fiscal years with other constituent entities;
- Clarification on certain aspects of applying the Blended CFC Tax Regime allocation method set forth in the 2023 February Administrative Guidance and other aspects concerning the GloBE Jurisdictional ETR;
- Discussion regarding the transitional filing deadlines for MNE groups with short reporting fiscal years; and
- Introduction of a simplified calculation safe harbour test for non-material constituent entities including commentary clarifying what is a non-material constituent entity (NMCE) and data necessary to run these NMCE simplified safe harbour tests.
The above is an overview of the updates provided in the 2023 December Administrative Guidance. A more robust FORsights™ discussing the 2023 December Administrative Guidance will be released shortly.