OECD: Further guidance on Pillar One Amount B and Pillar Two global minimum tax - KPMG United States (2024)

The report on Amount B was published in February 2024 and provides a simplified and streamlined approach to the application of the arm's length principle to baseline marketing and distribution activities, with a particular focus on the needs of low-capacity countries. Read TaxNewsFlash. The OECD/G20 Inclusive Framework on BEPS (IF) has now completed design aspects, allowing jurisdictions to begin with implementation.

The guidance published today provides:

• The definitions of “qualifying jurisdictions” within the meaning of section 5.2 and 5.3 of the Amount B guidance that will facilitate adjustments to the return calculated under the simplified and streamlined approach for tested parties located in those qualifying jurisdictions.
• The definition of “covered jurisdictions” within scope of the political commitment on Amount B that recognises that subject to their domestic legislation and administrative practices, members of the Inclusive Framework commit to respect the outcome determined under the simplified and streamlined approach to in-scope transactions where such an approach is applied by a covered jurisdiction and to take all reasonable steps to relieve potential double taxation that may arise from the application of the simplified and streamlined approach by a covered jurisdiction where there is a bilateral tax treaty in effect between the relevant jurisdictions. The approach developed to produce the list of covered jurisdictions facilitates tax certainty for jurisdictions most interested in implementing Amount B from 1 January 2025. Notably, the list includes Argentina, Brazil, Costa Rica, Mexico and South Africa, which have all expressed an interest to the Inclusive Framework in adopting Amount B.

Further work on the Pillar One package, including the Amount B framework, is ongoing. Read TaxNewsFlash.

The IF also released guidance to clarify and simplify the application of the global minimum tax and an overview of the process for recognising qualified status for the legislation of jurisdictions implementing the global anti-base erosion (GloBE) rules.

• Administrative guidance—This guidance:
  • Provides simplified procedures allowing multinational enterprises (MNE) groups to aggregate various categories of deferred tax liabilities to determine if they have reversed within five years and thus do not need to be recaptured;
  • Clarifies the methodology for determining deferred tax assets and liabilities for GloBE purposes;
  • Offers further guidance on the allocation of cross-border current and deferred taxes;
  • Clarifies how rules regarding the allocation of profits and taxes on certain flow-through tax structures should operate; and
  • Addresses the treatment of securitization vehicles under a jurisdiction's domestic minimum top-up tax to prevent volatile outcomes under the GloBE rules
• Country-by-country reporting (CbCR) safe harbor guidance—In December 2022, the Inclusive Framework agreed a simplification to the GloBE rules with the Transitional CbCR Safe Harbour, which is based on financial information used for purposes of CbCR. Further guidance released in December 2023 on the application of the Transitional CbCR Safe Harbor and additional interpretative guidance on CbCR released on May 27, 2024, ensure the consistent treatment of intragroup payments across jurisdictions, thereby avoiding the need for further adjustments under the global minimum tax.

KPMG observation: Although included in today's OECD release, this information is not new and was released in late May 2024. Read TaxNewsFlash

• Qualified status—As part of the “common approach” to the global minimum tax adopted in October 2021, the IF members that implement the GloBE rules have committed to a consistent and coordinated application to minimize compliance costs and the risk of double or over-taxation. The GloBE rules include a specific rule order to prevent a jurisdiction from imposing top-up tax on an MNE's low tax profits if those profits have already been taxed under “qualified” rules in another jurisdiction. A streamlined process for recognising which jurisdictions have qualified rules has been established, providing certainty that these rules will be recognised as qualified by other implementing jurisdictions during a transitional period while a full legislative review is conducted. This mechanism ensures MNEs understand which jurisdictions’ rules they must comply with according to the agreed rule order. A “question and answer” (Q&A) document has been published, which summarizes the main features of this transitional qualification mechanism. Importantly, this document clarifies that if a jurisdiction losses its qualified status the effect with not apply retrospectively, providing additional certainty to MNE Groups.