OECD Issues New Administrative Guidance to Simplify Pillar Two Rules for Businesses

The new guidance specifically addresses some of the complexities companies and stakeholders were facing.

One key area of clarification involves deferred tax liabilities (DTLs). The new guidance simplifies how MNE groups can aggregate these liabilities and clarifies whether a particular DTL needs to be "recaptured". The recapture rule limits the allowable timing differences to 5 years and requires a deferred tax liability to be recaptured to the extent it is not reversed within 5 years from when it was originally credited under the GloBE rules.

The new guidance also clarifies the applicable methodology for handling cases where the calculation of DTLs and deferred tax assets for GloBE purposes differs from the MNE's regular accounting calculation.

In terms of cross-border structures, the guidance instructs how to allocate both current and deferred taxes across different jurisdictions and addresses specific structures involving "flow-through entities" (i.e. companies that generally do not pay corporate income tax themselves). The document explains how to allocate profits and taxes within these structures for GloBE purposes.

Finally, the guidance offers specific instructions on how to handle securitization vehicles under a jurisdiction's minimum top-up tax. Securitization is a financial process that can sometimes create volatile tax situations. This new guidance aims to prevent that from happening under the GLOBE rules, ensuring a more stable tax outcome for these types of transactions.

Overall, the new guidance clarifies and simplifies a range of complex issues. Consequently, the OECD will incorporate the findings of this guidance into the Commentary.