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Nov 13, 2019

Client Update | Tax | Pillar Two: The OECD Releases Consultation Document on New Global Minimum Tax Rules

Following the release last month of the OECD’s Public Consultation Document for a Unified Approach under Pillar One, aiming to adopt a harmonized approach to taxation of digital activities, which focused on new nexus and allocation rules (more on this proposal in our October Client Update here), the OECD has recently issued another Public Consultation Document titled Global Anti-Base Erosion Proposal (“GloBE”) – Pillar Two, which touches on technical issues relating to the structure of a proposed global minimum tax and seeking public input on the same. While the GLoBE proposal addresses challenges relating to taxation of digital economy, it is intended to apply on a broader basis to other activities as well.

At its core, the GloBE proposal would adopt a new income inclusion rule that would tax the income of a foreign branch or controlled entity to the extent such income is subject to tax at an effective rate below a minimum rate (yet to be determined). To complement this rule and allow for its proper implementation, the GloBE proposal would adopt additional rules aimed at ensuring taxation at such minimum rate. The OECD is hoping to reach consensus by the end of 2020 on taxing profits of multinational groups at a worldwide minimum tax rate. The GloBE proposal expressly indicates that it represents a substantial change to the international tax architecture. The proposal would affect  the way multinational groups are structuring their international tax planning, including their transfer pricing, value chain and supply chain.

For the full update, click here>>

It is yet to be seen how the GloBE proposal will affect the discussion on the subject matter and how various jurisdictions will respond, given that many items of the proposal and the means of its implementation remain unclear. Please feel free to contact us with any comments or reactions you may have with respect to the GloBE proposal by the end of the month, and we will communicate the same to the OECD. We will keep you updated on any new developments on this matter.