OECD Q&A document provides insight into peer review process of Pillar 2 rules

In addition to the release of the most recent June 2024 Administrative Guidance, the Organisation for Economic Co-operation and Development (OECD) provided a brief Question and Answer (Q&A) document that offers information on the plans for the peer review process which will ultimately determine the qualified status of a domestic Income Inclusion Rule (IIR), Undertaxed Profits Rule (UTPR), and Domestic Minimum Top-up tax (DMTT), and eligibility for the Qualified Domestic Minimum Top-up Tax (QDMTT) Safe Harbor. 

Accordingly, the peer review process will certify the qualified status of the domestic implementation of the GloBE Rules, aimed at ensuring their uniform application and consistent administration. The process will include a legislative review and ongoing monitoring managed by the Inclusive Framework in order to ensure jurisdictional compliance with the GloBE Rules, including the Model Rules, Commentary, and Administrative Guidance.

The peer review process initiates with a transitional qualification mechanism that facilitates swift recognition of the qualified status of implementing jurisdictions' domestic legislation related to the GloBE Rules on a temporary basis. The Q&A describes this as a simplified procedure that relies on a self-certification process by each implementing jurisdiction. Furthermore, if an implementing jurisdiction submits a self-certification and no other Inclusive Framework Members raise questions, or if questions from Inclusive Framework members are resolved, the jurisdiction's legislation is recorded as having “transitional qualified status.” If questions from the Inclusive Framework Members are not resolved, then an accelerated full legislative review would need to be conducted.

This transitional status applies from the legislation's effective date until a full legislative review is completed. The full legislative review must start no later than two years after the effective date of the legislation. This timeline also suggest that implementing jurisdictions will need to initiate the self-certification process as early as this year.

The Q&A clarifies that, if the transitional qualified status is lost, this loss will not be retroactive if, for example, a full review finds that the legislation is not qualified or that the legislation is not initiated within the agreed timeframe.

As is further indicated, the Inclusive Framework will publish a list of jurisdictions that have legislation with transitional qualified status on the OECD website, including the start and end dates of applicability. Implementing jurisdictions must recognize other jurisdictions' transitional qualified status based on this published list.

Key takeaways

Multinational businesses may consider monitoring how the jurisdictions in which they operate reflect the June 2024 Administrative Guidance and all other agreed Administrative Guidance in their domestic Pillar 2 legislation. In addition, companies may also choose to monitor the outcome of the peer review process and the determination of the qualified status of the IIRs and QDMTTs (including QDMTT Safe Harbor status) of all relevant jurisdictions.

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