New OECD Pillar 2 Guidance Enhances Compliance Processes and Clamps Down on Anti-Abuse Measures

The OECD/G20 Inclusive Framework on BEPS introduced new tools and updates on 15 January 2025 to streamline the administration of the global minimum tax. These include a compilation of qualified domestic rules, updates to the GloBE Information Return (GIR) and supporting materials as well as new guidance in the form of anti-abuse measures in relation to the treatment of deferred tax assets.

 

1. Administrative Guidance (AG) addressing treatment of certain deferred tax assets (Article 9.1 of the GloBE rules)

The 2023 and 2024 AG include anti-abuse provisions primarily aimed towards taxpayers and the interpretation of the original Model Rules and Commentary, such as the guidance on hybrid financing arrangements and the transfer of (intangible) assets. This first set of AG of 2025 concerning Article 9.1.1 on deferred tax assets (DTAs) originating after November 30, 2021, is anti-abuse guidance more directed towards implementing jurisdictions and authorities.

Under the Model Rules, existing DTAs that arose before the GloBE rules came into effect can, in principle, be used in the GloBE Effective Tax Rate (ETR) calculations. This means that a reversal of an existing DTA would be considered a deferred tax adjustment, increasing the Covered Taxes for the GloBE ETR calculation. The original Model Rules are fairly liberal in allowing existing deferred tax assets to be included in the GloBE calculations. It appears that the OECD believes some jurisdictions have taken advantage of this, implementing arrangements that compromise the integrity of the GloBE rules. This latest guidance, therefore, introduces additional guardrails on the ability to roll over existing DTAs into the GloBE calculations and excludes certain DTAs. While the guidance primarily focuses on specific government arrangements that allowed companies to account for a DTA shortly before the GloBE rules came into effect, these rules could have broader applications. We advise companies to determine if they utilize any DTAs that originated after November 30, 2021, for their GloBE calculations and assess if the GloBE treatment of the release of these DTAs is impacted by this new guidance.

Regarding deferred tax assets that originated after November 30, 2021, the OECD addresses the following:

• DTAs with the following features may be excluded from the application of Article 9.1.1. In other words, such existing DTAs cannot be included in the GloBE calculations, and their reversal does not result in creating additional Covered Taxes:
• DTAs that cannot be accounted for in the Authorized Financial Accounts
• DTAs associated with non-economic expenses or losses for tax
purposes (eg, a previous year domestic loss triggered by amortization in excess of the cost of the asset)
• DTAs that are not attributable to the prepayment of tax in relation to income that would be included in GloBE
• DTAs relating to tax credits based on future expenditure or activity
• The extended scope of excluded DTAs as per this guidance is not limited to commercial transactions. The AG explicitly confirms that any arrangement with a government resulting in the DTA is also within the scope of the exclusion.
• The OECD singles out three specific transactions resulting in DTAs that fall within the scope of Article 9.1.2 and are thus excluded as DTAs that can be included in the GloBE calculations. These examples are based on specific arrangements that jurisdictions have introduced in anticipation of the GloBE rules coming into effect and are now addressed by the OECD:
• A DTA that originates from a government agreement in which the taxpayer becomes entitled to a tax credit or other type of tax relief (including step-ups) that otherwise would not have arisen
• A DTA that originates from a government agreement allowing a retroactive change of the treatment of a certain transaction for which a final assessment has already been issued
• A DTA that originates from a step-up granted by a government before the introduction of a new corporate income tax regime where there previously was no corporate income tax
• Since the OECD addresses certain arrangements that have already been put in place by jurisdictions, the guidance provides for a grace period in which part of the benefit may continue to be applied for a limited number of years.

In our view this specific guidance by the OECD on deferred tax assets was triggered by arrangements entered into by a limited number of jurisdictions. It was meant to address these specific scenarios and deter other governments from entering comparable arrangements. The scope and application of the final guidance may, however, exceed the original objectives, whether intended or not. Therefore, it is important for companies to assess their pre-GloBE rules DTAs that are included in the GloBE calculations.

The OECD further announces that additional guidance is forthcoming with respect to so-called 'Related Benefits.' In essence, jurisdictions are adopting new tax incentives such as QRTCs and similar measures, which under a 'related benefits' assessment may be considered not in line with the objectives of the GloBE rules. In other words, tax incentives designed to 'give back' top-up taxes may impact the qualified status of the GloBE implementation in such jurisdictions. This guidance has been pending for quite some time, and many companies and jurisdictions are eager to learn the direction that the OECD sets out in this respect.

 

2. Updates to the GloBE Information Return (GIR) and MCAA

The second batch of the newly issued AG addresses the developments related to the standardized template for the GloBE Information Return (GIR).

In particular, the AG updates the language in the Commentary to Articles 8.1.4 and 8.1.5 of the GloBE Rules with the additional guidance introduced by the July 2023 AG.

Specifically the AG focusses on how the GIR needs to be completed in some circumstances where there are differences between the domestic legislation of implementing jurisdictions that would result in different computations for the same data point in the GIR. Although these differences should not be the norm, as the domestic legislation is expected to be majorly in line with the OECD GloBE Model Rules, the IF envisioned an approach where those difference are indeed present.

The guidance allows MNE Groups to use a single source of information to complete each section of the GIR, when multiple jurisdictions have taxing rights under the GloBE Rules. On the other hand, the GIR provides a few data points which should cover the impact of those differences at least high level for MNE Groups to disclose those data points. Implementing jurisdictions can require additional reporting about such differences via domestic filing requirement.

 

3. Central Record of Legislation with Transitional Qualified Status

Lastly, the newly issued AG addresses the central record of legislation with transitional qualified status. This guidance includes updates to the Commentary and introduces a central record for jurisdictions' legislation. Key points include:

• Transitional Qualification Mechanism: A simplified procedure to swiftly recognize the qualified status of implementing jurisdictions' legislation on a temporary basis, pending full legislative review and ongoing monitoring.
• Central Record: Annex B of the guidance includes a central record of legislation with transitional qualified status, updated regularly. This record lists jurisdictions whose legislation is recognized as qualified from the effective date of the legislation.
• Qualified Income Inclusion Rules (IIR): The guidance provides a list of jurisdictions with qualified IIR legislation, ensuring that multinational enterprises (MNEs) are subject to a minimum effective tax rate of 15% on income arising in each jurisdiction.
• Qualified Domestic Minimum Top-up Tax (QDMTT) Rules and Safe Harbours: The central record also indicates jurisdictions with qualified QDMTT legislation and safe harbours, ensuring compliance with the global minimum tax requirements.

This guidance is essential for MNEs to understand the transitional qualified status of various jurisdictions' legislation and to ensure compliance with the GloBE Rules.