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Global Anti-Base Erosion Model, Pillar Two – Accounting For the Global Minimum Tax

On February 2, 2023, the OECD issued its highly anticipated Pillar Two guideline package. Accordingly, a revised version of the Commentary will replace the original Commentary provided in March 2022, along with the guidance later this year.

According to the OECD, this guideline completes the implementation framework introduced in October 2021 and releases from December 2022 (safe harbors, penalty reduction, information returns, and tax certainty). Key concerns regarding the implementation of Pillar Two are addressed in this initial round of supplemental guidance. The guidance’s handling of some non-refundable tax credits resulting from equity method investments is one of its key features.

The minimal requirements outlined in the guidance differ from those that apply to IIRs, as do the tax base and rate for QDMTTs. Even though QDMTTs can diverge from GloBE regulations, they usually have to generate a tax rate at least 15% higher than GloBE’s minimum rate.

So, under their respective CFC or taxable branch regimes, QDMTTs must remove tax paid by domestic constituent entities from foreign constituent entity income. Because of this, GILTI and Subpart F taxes cannot affect the ETR of QDMTTs.

Countries must enact tax laws to execute the GloBE regulations. Entities must assess whether the laws passed in each jurisdiction’s provisions are consistent with the OECD’s model guidelines. Also, entities must determine the provisions of laws passed by each country to adopt the accounting advised by FASB staff.