Safe Harbours and Penalty Relief: Global Anti-Base Erosion Rules (Pillar Two)

 

Significant EU developments

EU member states reached agreement in principle to implement at EU level the minimum taxation component, known as Pillar Two, of the OECD’s reform of international taxation. The ambassadors of EU member states decided to advise the Council to adopt the Pillar 2 Directive, and a written procedure for the formal adoption will be launched. Effective implementation of the directive will limit the race to the bottom in corporate tax rates.

 

The profit of the large multinational and domestic groups or companies with a combined annual turnover of at least €750 million will be taxed at a minimum rate of 15%. The new rules will reduce the risk of tax base erosion and profit shifting and ensure that the largest multinational groups pay the agreed global minimum rate of corporate tax.

 

Safe Harbours

The OECD Inclusive Framework has agreed on the design of a transitional safe harbour and a regulatory framework for the development of a potential permanent safe harbour as well as a common understanding for a transitional penalty relief regime

 

During the Transition Period (Fiscal Years beginning on or before 31/12/2026 but not including a Fiscal Year that ends after 30/6/2028), the Top-up Tax in a jurisdiction for a Fiscal Year shall be deemed to be zero where:

• the MNE Group reports Total Revenue of less than EUR 10 million and Profit (Loss) before Income Tax of less than EUR 1 million in such jurisdiction on its Qualified CbC Report for the Fiscal Year; or 

• the MNE Group has a Simplified ETR that is equal to or greater than the Transition Rate (15% for Fiscal Years beginning in 2023 and 2024; 16% for Fiscal Years beginning in 2025; and 17% for Fiscal Years beginning in 2026) in such jurisdiction for the Fiscal Year; or

• the MNE Group’s Profit (Loss) before Income Tax in such jurisdiction is equal to or less than the Substance-based Income Exclusion amount, for constituent entities resident in that jurisdiction under the CbCR, as calculated under the GloBE Rules. 

 

Moreover a proposal for a permanent safe harbor rule was launched and a Transitional Penalty Relief was announced, such that during the Transition Period, no penalties or sanctions should apply in connection with the filing of a GloBE Information Return where a tax administration considers that an MNE has taken reasonable measures to ensure the correct application of the GloBE Rules.

 

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