In December 2021 the members of the OECD’s Inclusive Framework (IF) reached a political agreement on reforms to the international tax system. One of the Pillar Two measures agreed was the introduction of top-up tax rules to ensure a minimum effective taxation of 15% in each jurisdiction where MNE groups with a global turnover of at least EUR 750 million have a taxable presence (GloBE Rules). We refer to our Tax Flash of 21 December 2021. The OECD also published a commentary in March 2022, we refer to our Tax Flash of March 2022. Last week, the EU formally adopted the EU Directive implementing Pillar Two. We refer to our Tax Flash of 16 December 2022.


On 20 December 2022, the OECD released an additional implementation package relating to the GloBE Rules consisting of three parts:

  • Guidance on Safe Harbours and Penalty Relief;
  • A public consultation document on the GloBE Information Return; and
  • A public consultation document on Tax Certainty for the GloBE Rules. 

The IF expects to release administrative guidance on the GloBE rules on a rolling basis and the first package is expected in 2023. In addition, the OECD announces that it is also in the process of finalizing the subject-to-tax rule (we refer to our earlier flash on Pillar Two for the details) and the multilateral instrument required to implement it. 

Guidance on Safe Harbours and Penalty Relief

The Guidance on Safe Harbours and Penalty Relief (Guidance) includes three sections:

  • the agreed terms of a Transitional Country-by-Country Reporting Safe Harbour;
  • the framework for the development of Permanent Safe Harbour;
  • a common understanding as to a Transitional Penalty Relief Regime.

The GloBE Rules and the recently approved EU Directive already contain a placeholder for safe harbours. The agreed Transitional Country-by-Country Reporting Safe Harbour (Transitional Safe Harbour) should therefore directly be part of the formal implementation process of the GloBE Rules and EU Directive.

The IF is also working on a Qualified Domestic Minimum Top-up Tax (QDMTT) safe harbour that would eliminate the need for an MNE to perform an additional GloBE calculation in a jurisdiction that has adopted a QDMTT. This safe harbour will be part of the Administrative Guidance on the QDMTT.

The IF agreed to apply the Transitional Safe Harbour to fiscal years beginning on or before 31/12/2026 but not including a fiscal year that ends after 30/6/2028 (Transition Period). It is expected that this covers the initial three fiscal years that the GloBE Rules come into force, i.e. the fiscal years starting in 2024, 2025 and 2026. The Transitional Safe Harbour aims to remove the obligation of calculating the effective tax rate based on the detailed GloBE Rules for lower-risk jurisdictions in the initial years.

Under the Transitional Safe Harbour, the top-up-tax for a jurisdiction is deemed to be zero if one of the following tests is met in that jurisdiction:

  1. In the CbCR, the Total Revenue is less than EUR 10 million and the Profit (Loss) before Income Tax is less than EUR 1 million; or
  2. the Simplified ETR (see below) is greater or equal to the Transition Rate; or
  3. the Profit (Loss) before Income Tax is equal or less than the Substance-based carve-out as calculated under the GloBE rules. 

The Total Revenue and the Profit (Loss) before Income Tax follow directly from an MNE’s Qualified CbC Report (i.e., prepared based on Financial Statements which meet certain criteria).

The Simplified ETR is calculated by dividing the jurisdiction’s Simplified Covered Taxes by its Profit (Loss) before Income Tax. The Simplified Covered Taxes is a jurisdiction’s income tax expense as reported in the MNE Group’s financial statements, after eliminating any taxes that are not Covered Taxes and uncertain tax positions reported. The Simplified Covered Taxes therefore include deferred items which is different than Income Tax Accrued under CbCR.

In addition to the above, the Transitional Safe Harbour contains special rules for certain entities such as Joint Ventures, Minority-Owned Constituent Entities and Investment Entities.

The Simplified Calculations Safe Harbour is a proposal for a Permanent Safe Harbour. The proposal contains three tests, similar to the tests mentioned above under the Transitional Safe Harbour, i.e., De Minimis Test, ETR Test and Routine Profits Test. 

Each test can be performed with a Simplified Calculation which seems not to be linked to CbCR data. The Guidance does not contain an overview on how these Simplified Calculations should be performed but mentions details will be included in Agreed Administrative Guidance. The Guidance does state that the Simplified Calculations would have to provide for the same outcomes as those contemplated under the GloBE Rules and would not otherwise undermine the integrity of the GloBE Rules.

Similar to the Transitional CbCR Safe Harbour, qualifying for the Permanent Safe Harbour on a jurisdictional basis does not exempt the MNE Group from complying with group-wide GloBE requirements such as the requirement to prepare and file its GloBE Information Return.

Under the Transitional Penalty Relief Regime, it is proposed 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. 

The term “reasonable measures” is not defined. According to the Guidance, it should be understood in light of each jurisdiction’s existing rules and practice.

Public consultation document on the GloBE Information Return

The IF has started working on a standardized GloBE Information Return (GIR) that provides information on the tax calculations made by MNE Groups and should contain all information tax administrations require to evaluate whether an MNE Group is compliant with the GloBE rules. The IF has primarily focused on the identification of the data points required for calculating an MNE’s GloBE tax liability. The data points and the explanatory guidance hereto are included in the Annex to the public consultation document.

The OECD seeks input on the amount and type of information that MNE Groups should be expected to collect, retain and/or report for the application of the GloBE Rules and possible simplifications that could be incorporated in the GIR as well as the ability of the MNE Group to provide alternative data points.

Public consultation document on Tax Certainty for the GloBE Rules

The public consultation document on Tax Certainty for the GloBE Rules outlines various mechanisms for achieving tax certainty under the GloBE Rules that are being explored by the IF. The document focuses on dispute prevention mechanisms to ensure a common interpretation and / or application of the rules and dispute resolution mechanisms to resolve GloBE issues. In short, the IF summarizes how to expand the use of several already available mechanisms, such as APA's, ICAP or MAP's to the GloBE Rules. 

Next steps

The EU has formally approved the directive to implement the GloBE Rules within the EU. The “income inclusion rule” and (optionally) the “Qualified Domestic Minimum Top-up Tax” will enter into force for tax years starting on or after 31 December 2023. It is expected that other jurisdictions will follow shortly. 

MNE Groups (and domestic groups if located in the EU) should therefore start preparing now to apply the GloBE rules as of 2024. The agreed Transitional Safe Harbour provides a welcome simplification for the first years that the GloBE Rules apply. Within the EU, member states will need to legislate on the implementation of this simplification measure in addition to the directive. The public consultation document on the GIR also provides groups an opportunity to assess whether they are ready to gather all data points required to perform the GloBE calculations. 

Groups in scope of Pillar Two get thereby another opportunity to contribute to the design of the GloBE Information Return and Tax Certainty under the GloBE rules. Our Pillar Two team can support you in providing input.

Our Pillar Two team is available to support you in analysing and modelling the impact of the Pillar Two rules on your group, assisting you in setting up compliance processes and exploring ways to mitigate increased taxation and complexity.

Should you have any question in the meantime, please contact a member of our Pillar Two team or your regular trusted contact at Loyens & Loeff.