OECD Releases Commentary on GloBE Model Rules

On 14 March 2022, the Organisation for Economic Co-operation and Development (OECD) published detailed technical commentary elaborating on the application and practical implementation of the Global Anti-Base Erosion (GloBE) model rules under Pillar Two released in December 2021.

The GloBE model rules commentary provides detailed and comprehensive technical guidance and clarifies the meaning of certain terms with the aim to ensure a consistent and common interpretation of the GloBE model rules and facilitate co-ordinated outcomes for both tax administrations and multinational enterprises (MNEs). More specifically:

• chapter one of the commentary outlines the scope of the GloBE model rules (i.e. constituent entities of an MNE group with consolidated revenues of at least EUR 750 million in at least 2 of the 4 prior fiscal years);
• chapter two of the commentary describes the operating mechanics for the income inclusion rule (IIR) and the undertaxed payment rule (UTPR);
• chapter three of the commentary analyses the mechanics for calculating a constituent entity's GloBE income or loss;
• chapter four of the commentary outlines the mechanics for determining the amount of covered taxes on the GloBE income of each constituent entity;
• chapter five of the commentary analyses the steps to be taken in determining the amount of top-up tax of each low-taxed constituent entity;
• chapter six of the commentary addresses the potential consequences of a transfer of part or all of the controlling interests or a transfer of assets and liabilities of a target constituent entity; and
• chapter seven of the commentary includes specific rules that apply to certain tax neutrality and distribution regimes for the avoidance of unintended outcomes under the GloBE model rules;
• chapter eight of the commentary contains provisions in respect of the administration of the GloBE model rules;
• chapter nine of the commentary includes transition provisions for taking into account losses and other tax attributes that arose prior to the application of the GloBE model rules; and
• chapter ten of the commentary contains definitions of terms used in the GloBE model rules and provides additional rules to define flow-through entities, tax transparent entities, reverse hybrid entities and hybrid entities.

Also, the OECD initiated a public consultation seeking input from interested parties on the matters they believe need to be addressed, as part of the implementation process. The public consultation will run until 11 April 2022.

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