OECD/G20 Inclusive Framework releases document on Pillar Two GloBE Information Return

Executive summary

Among the series of documents that the Organisation for Economic Co-operation and Development (OECD) released on 17 July 2023 focusing on elements of the OECD/G20 project addressing the tax challenges of the digitalization of the economy (the BEPS 2.0 project) is a document (pdf) on the GloBE Information Return (GIR). This document, which has been approved by the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS), contains an overview of the GIR and how it is intended to operate, the template for the GIR itself, and explanatory guidance on the GIR.

The GIR is intended to contain the information that tax administrations will need in order to perform a risk assessment and to evaluate the correctness of a Constituent Entity's Top-up Tax liability under the GloBE Rules. In addition to the standard template for the GIR, the GIR document outlines a transitional simplified jurisdictional reporting framework, an approach for dissemination of the GIR information and next steps with respect to the GIR.

The template for the GIR contains a general section on the Multinational Enterprises (MNE) Group as a whole and specific jurisdictional sections that would also be used for reporting calculations under a Qualified Domestic Minimum Top-up Tax (QDMTT) that meets the safe harbor requirements.

To facilitate the first years of information collection and reporting, a transitional simplified jurisdictional reporting framework is available for all Fiscal Years beginning on or before 31 December 2028 but not including a Fiscal Year that ends after 30 June 2030. This simplified framework allows MNE Groups to report on a jurisdictional basis, rather than on a Constituent Entity basis.

The approach for disseminating GIR information includes a central filing mechanism and follows a targeted approach under which implementing jurisdictions with taxing rights under the GloBE Rules would receive the data relevant to them.

Detailed discussion

Background

The Inclusive Framework released a series of significant agreed documents on the Pillar Two GloBE Rules starting in 2021, including the Model GloBE Rules (released on 20 December 2021),1 Commentary (14 March 2022),2 guidance on GloBE safe harbors released (20 December 2022),3 and GloBE Administrative Guidance (2 February 2023).4 The Inclusive Framework also released a second tranche of agreed GloBE Administrative Guidance at the same time as the GIR document was released.5

These documents are intended to be used by countries to incorporate the Pillar Two global minimum tax rules into their domestic tax legislation. Chapter 8 of the GloBE Model Rules addresses administrative aspects of the GloBE Rules. It sets out an MNE Group's obligation to file a standardized information return to provide information on the tax calculations the MNE Group will make under the GloBE Rules. The GloBE Model Rules state that the required information shall be specified, expanded or restricted in accordance with the GloBE Implementation Framework.

On 20 December 2022, the OECD released a consultation document6 on the Pillar Two GIR seeking stakeholder input. The consultation document, which did not reflect consensus views of the Inclusive Framework, provided information on the development of a standardized GIR and included Annexes setting out identified data points for Pillar Two compliance (including the calculation of GloBE tax liability) as well as accompanying explanatory guidance.

GloBE Information Return

The GIR document released on 17 July 2023 contains a standardized template for the GIR that includes the information considered necessary for tax authorities to perform a risk assessment and to evaluate the correctness of a Constituent Entity's Top-up Tax liability under the GloBE Rules.

The GIR document reiterates that the obligation to prepare a GIR is separate from the requirement to declare and pay taxes under a tax return. Each implementing jurisdiction will determine its tax return filing and payment procedures for GloBE, which are generally expected to align with their existing procedures. While some jurisdictions may need additional data points beyond the GIR for tax return preparation (e.g., converting Top-up Tax liability into domestic currency), the document indicates that jurisdictions should generally avoid requesting additional data related to the calculation of a Constituent Entity's Top-up Tax liability. The document also indicates that the agreement on the standardized GIR does not preclude a tax administration from requesting necessary supporting documentation.

The GIR document includes (i) a standard template for the GIR, (ii) a transitional simplified jurisdictional reporting framework, and (iii) an approach for dissemination of the GIR.

Standard template

The GIR consists of a general section (MNE Group Information), containing information for the MNE Group as a whole, and jurisdictional sections (Jurisdictional Safe Harbours and Exclusions and GloBE Computations) that would contain more detailed information for each jurisdiction in which the MNE group operates.

The general section includes general information about the MNE Group and its corporate structure, identifies the Filing Constituent Entity, and provides a summary table on the application of the GloBE Rules in each jurisdiction where the MNE operates. This summary would include (i) details on the jurisdictional Effective Tax Rate (ETR) range (in 2.5% increments up to 30%, with ETRs above 30% reported as "above 30%"), (ii) ranges reflecting the amount of Top-up Tax relating to a jurisdiction, and (iii) for jurisdictions where no ETR has been computed, the reason ETR was not calculated as well as the identity of jurisdictions where the MNE has no excess profits due to the Substance-based Income Exclusion.

The jurisdictional sections would include more information for each jurisdiction in which the MNE group operates. Where safe harbors or exclusions apply, only limited information would be required. However, where safe harbors and exclusions do not apply, the MNE Group would provide ETR and Top-up Tax computations, including the GloBE Income adjustments, as well as the details of Adjusted Covered Taxes, and Top-up Tax allocations where required. Importantly, these jurisdictional sections would also be used for reporting calculations under a QDMTT that meets the safe harbor requirements.

Transitional simplified jurisdictional reporting framework

The GIR document lays out a transitional simplified jurisdictional reporting framework applicable to all Fiscal Years beginning on or before 31 December 2028 but not including a Fiscal Year that ends after 30 June 2030.

During the transition period, the MNE Group can elect to provide information at a jurisdictional level, rather than on a Constituent Entity basis, if one of two conditions is met:

1. No Top-up Tax liability arises in the jurisdiction
2. Top-up Tax liability arises in the jurisdiction, but it does not need to be allocated on a Constituent Entity-by-Constituent Entity basis

When an MNE Group opts to apply the simplified jurisdictional reporting framework, the MNE Group is not required to report all adjustments to the Financial Accounting Net Income or Loss, current tax expense or deferred tax expense on a Constituent Entity-by-Constituent Entity basis and all adjustments can be reported on a net basis. However, where a specific Article of the Model GloBE Rules requires a calculation to be done at the Constituent Entity level, the particular calculation is still required to be done at that level even if the information is reported in an aggregated format in the GIR. Moreover, tax authorities may request any information in follow-up requests, including Constituent Entity-by-Constituent Entity information.

If the conditions for the simplified jurisdictional reporting framework are not met for a jurisdiction, an MNE Group will be required to report on a Constituent Entity-by-Constituent Entity basis all the relevant adjustments made to determine each Constituent Entity's GloBE Income or Loss and Adjusted Covered Taxes as provided in the GIR.

Dissemination of the GIR

Processing of the GIR will generally operate via central filing. This means that the GIR should be filed with a single tax administration that exchanges the GIR with other tax administrations under a Qualifying Competent Authority Agreement. If an implementing jurisdiction cannot rely on the central filing and exchange mechanism, local filing may be required. In any case, the same information would be provided to a tax administration regardless of whether the GIR is filed centrally and exchanged or filed locally.

As described in the GIR document, the Inclusive Framework has adopted the following targeted dissemination approach for GIR information:

• Ultimate Parent Entity (UPE) jurisdiction: If the UPE jurisdiction implements the GloBE Rules, it will be provided with the entire GIR.
• Jurisdictions with taxing rights under specified rule order for GloBE: Jurisdictions with taxing rights under the GloBE Rules are those where the MNE Group not only is subject to the GloBE Rules but also is required to apply the GloBE Rules in accordance with the rule order. This includes QDMTT jurisdictions. A jurisdiction has taxing rights even if no Top-up Tax liability actually arises and in domestic situations (e.g., domestic Income Inclusion Rule).
  
  These jurisdictions will be provided with the sections of the GIR related to the computation of ETR and Top-up Tax computation, including its allocation and attribution among implementing jurisdictions, for those jurisdictions in respect of which they have taxing rights.

• All implementing jurisdictions: All implementing jurisdictions where the MNE Group has Constituent Entities will be provided with the general information about the MNE Group, the reporting Fiscal Year covered by the GIR, and the corporate structure.

The MNE Group has the option to have the entire GIR provided to all implementing jurisdictions where it has Constituent Entities, regardless of the above approach.

The GIR document indicates that the Inclusive Framework may consider developing guidance on the role of the central filing tax administration and how the dissemination approach will apply in practice. The Inclusive Framework will also consider the reporting of aggregated GIR data on an anonymized basis as part of the peer review process to be developed. The anonymized data could include GloBE Income, Adjusted Covered Taxes, ETR, the Substance-based Income Exclusion and Top-up Taxes.

Next steps

According to the GIR document, the centralized filing requirements and appropriate mechanisms for automatic exchange of GloBE information will be finalized, including a framework of Qualifying (bilateral and multilateral) Competent Authority Agreements, along with information technology (IT) solutions supporting exchange of information via a dedicated XML schema. Models for these agreements will be developed based on the Convention on Mutual Administrative Assistance in Tax Matters, Tax Information Exchange Agreements, Tax Treaties with provisions similar to Article 26 (exchange of information) of the OECD Model Tax Convention or any other international agreement enabling automatic information exchange.

The OECD will also explore the possibility of developing other administrative mechanisms to facilitate further coordination and consistent application of the GloBE Rules.

Implications

The GIR document provides a clear indication of the amount of data that businesses will have to report for GloBE purposes and the format for such reporting. Although the GIR document includes some simplifications for the initial years of the GloBE rules, the compliance burden for businesses will still be substantial.

Businesses should evaluate the changes to their accounting and IT systems that will be needed to identify and produce all the data points required for the GloBE calculations and for the GIR. In addition, businesses should closely monitor ongoing developments in this area, including the approaches taken by relevant jurisdictions in implementing the GIR.

For additional information with respect to this Alert, please contact the following:

Ernst & Young Belastingadviseurs LLP (Netherlands)

• Ronald van den Brekel
• Roberto Aviles Gutierrez

Ernst & Young Limited, New Zealand

• Matt Andrew

Ernst & Young LLP (United States)

• Barbara M. Angus
• Jose A. (Jano) Bustos
• Jean-Charles van Heurck

Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor

For a full listing of contacts and email addresses, please click on the Tax News Update: Global Edition (GTNU) version of this Alert.

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