Search for:

In brief

On 14 March 2022, the OECD published its long awaited commentary to the model GloBE rules. At more than 200 pages, the commentary will take some time to fully absorb. However, it appears that the guidance still leaves some fundamental issues unanswered, such as how the GloBE rules co-exist with the US’s GILTI regime, and what simplifications/safe-harbors will be available to taxpayers to reduce their compliance burden. It is expected that this will be further addressed in the implementation framework, for which a public consultation was launched on the same day. Further analysis of the commentary will be made available on InsightPlus.

Separately, France (who currently holds the EU presidency) sought to progress the EU implementing directive by offering several concessions in light of concerns expressed by a number of Member States, the most significant being a proposed delay of the implementation of the regime by at least 12 months. Those concessions were not enough to reach the unanimity required when the EU’s Economic and Financial Affairs Council (ECOFIN) met on 15 March 2022. It remains to be seen what further concessions France may be willing to offer ahead of the next ECOFIN meeting on 5 April 2022.

The OECD publishes the commentary to the model GloBE rules

On 14 March 2022, the OECD published its long awaited commentary to the model GloBE rules, which broadly aim to ensure that the profits of large multinational groups are subject to an effective tax rate of at least 15% in each jurisdiction in which they operate (see here for further detail). The commentary seeks to explain the rationale behind the various provisions that make up the model GloBE rules, and fill in some gaps where necessary. That it took more than two months to agree what had been intended by the model GloBE rules, which were published in December 2021, perhaps illustrates the complexity of those provisions and the inherent challenges of reaching consensus between 137 jurisdictions.

At more than 200 pages, the commentary is three times the length of the model GloBE rules, so will take some time to fully absorb. However, on an initial review, it seems that some key questions still remain outstanding. Namely, how will the US GILTI regime co-exist with the GloBE rules and what simplification measures will be put in place to reduce the administrative burden imposed by the regime?

The OECD opens public consultation on the Implementation Framework until 11 April 2022

On this latter point, the OECD has opened a public consultation inviting comments on four broad questions, one of which asks for suggestions on measures to reduce compliance costs for affected taxpayers. The lack of accompanying detail on measures that have been considered by the Inclusive Framework is somewhat surprising. The consultation is essentially an open invitation for stakeholders to submit ideas for simplification to the OECD’s mailbox by 11 April 2022. That the OECD has not been able to put forward any proposals for discussion may potentially indicate there are quite significant differences of opinion within the Inclusive Framework on what would be acceptable. In the absence of an emerging consensus between members of the Inclusive Framework, the OECD may be turning to the wisdom of the crowd.

EU struggles to reach unanimity on its implementing directive – delayed by at least 12 months?

Alongside the OECD’s publications this week, a new draft of the EU’s directive to implement the GloBE rules emerged. France, which currently holds the EU Council Presidency, had put forward a compromise text in an attempt to reach an agreement at the ECOFIN of 15 March 2022.

Press reports indicated there had been calls from some Member States for: 1) the implementation of the rules to be delayed to allow more time, given their complexity; 2) implementation of the Pillar Two GloBE rules to be legally linked to the implementation of Pillar One; and 3) implementation by Member States to be optional to some degree.

The compromise text put forward by France sought to deal with these concerns by delaying implementation of the rules by at least 12 months. Previously, the Income Inclusion Rule (IIR) would have applied from 1 January 2023, under the compromise text, Member States would apply the IIR to “fiscal years beginning as from 31 December 2023”, with the Undertaxed Profit Rule (UTPR) applying to “fiscal years beginning as from 31 December 2024”.

This is an interesting development as the political agreement reached by the Inclusive Framework on 8 October 2021 states that “Pillar Two should be brought into law in 2022, to be effective in 2023, with the UTPR coming into effect in 2024”.

Recital 21 of the compromise text suggests the revised EU timeframe is consistent with that political agreement, but in reality, the directive would now substantively apply from 2024 onwards. The only exception would be an in-scope taxpayer that has an accounting period that begins (rather than ends) on 31 December, which is likely to be rare in practice.

That said, the 8 October agreement was also explicit that members of the Inclusive Framework are not obliged to implement the GloBE rules, so perhaps delayed implementation is considered better than no implementation at all. 

A further development, introduced by the newly included Article 47a of the compromise text, is the option for certain Member States to elect to defer the application of the directive until fiscal years beginning as from 31 December 2025. To be eligible, the member state cannot have more than 10 groups headquartered in its jurisdiction that are in the scope of the directive.

This temporary deferral mechanism appears to be designed to address concerns from Estonia that they will need more time to restructure their domestic tax system, which levies taxes on profits as they are distributed by companies, rather than when accrued. The trade-off for electing under Article 47a is that the UTPR is applied by other Member States to the companies located in the electing jurisdiction one year earlier in 2024. This would therefore only be a temporary reprieve for in-scope domestic taxpayers in those electing jurisdictions.

Lastly, the December draft produced by the EU Commission included provisions to delegate authority to the Commission to assess the equivalence status of third-country IIRs and amend the annex to the directive to reflect the outcome of those assessments. The compromise text removed that power; the EU Council would instead make decisions on equivalence through unanimous decision.

Whilst these are quite significant concessions, it has not been enough (at this point in time) to reach the unanimity required for the directive to move to the next stage in the EU’s legislative process, with Estonia, Malta, Poland, and Sweden all expressing opposition to the current draft of the directive.

The grounds of that opposition is in some cases based on a desire for more time to consider the proposal, as the Inclusive Framework continues to work through a number of outstanding issues, as well as a desire for greater legal certainty that Pillar One and Pillar Two will progress together. The French presidency indicated they are confident they can address those concerns, it is therefore unlikely that the concessions offered in France’s compromise text will be withdrawn when the ECOFIN next meet on 5 April 2022. Rather, it seems the question is what further concessions France may be willing to offer to reach the unanimity that is required to progress the directive.

List of implementing countries continues to grow

Outside of the EU, the list of jurisdictions that have formally announced an intention to implement the model GloBE rules continues to grow. Governments in the UK, Singapore, Hong Kong, Switzerland, and South Africa have all formally indicated their intention to implement, whilst the UAE has announced an intention to apply a special rate to large companies in the scope of the GloBE rules.

It is likely this list will expand further, but it remains to be seen whether the likely delay in the EU’s implementation will influence the timetable for other jurisdictions.


Richard Fletcher heads the UK Transfer Pricing Group in London. A seasoned professional with over 30 years of experience as an international tax adviser, he has published a number of articles in various tax technical journals. Richard has presented at the International Tax Review’s Global Transfer Pricing Conference for a number of years and at meetings of tax directors of UK multinationals for the UK branch of the International Fiscal Association.


Mounia Benabdallah is a principal in Baker McKenzie’s International Tax Practice Group. She joined Baker McKenzie in 2006 and has practiced in the Firm’s offices in Amsterdam, Chicago and New York. As an attorney at law she is admitted to the Netherlands Bar. Mounia is repeatedly recognized as leading advisor in ITR’s Women in Tax Leaders guide. Because of her strong US focus, Mounia is based in New York and member of the Global Reorganizations Practice Group. Mounia mainly advises US multinationals on the interplay between US international tax law, European tax law and Netherlands tax law in global restructuring projects, with a strong focus on global (OECD BEPS) and European tax policy developments.


Nick Evans is a senior tax adviser in Baker McKenzie London office.


Lynn van den Berg is an associate in Baker McKenzie's Tax Practice Group in Amsterdam.


Ed Swift is a Senior Associate in Baker McKenzie London office.

Write A Comment