20 December 2021

OECD: Global Anti-Base Erosion Model Rules (Pillar Two)

The Pillar Two Model Rules are part of the Two-Pillar Solution to address the tax challenges of the digitalisationof the economy that was agreed by 137 member jurisdictions of the OECD/G20 Inclusive Framework onBEPS and endorsed by the G20 Finance Ministers and Leaders in October.

The Pillar Two Rules in a Nutshell

The y were developed by
delegates from all Inclusive Framework member jurisdictions and agreed and approved by consensus.
The Pillar Two Model Rules are designed to ensure large multinational enterprises (MNEs) pay a minimum
level of tax on the income arising in each jurisdiction where they operate. The rules run to about 45 pages
with another 15 pages of definitions. They are drafted as model rules that provide a template that
jurisdictions can translate into domestic law, which should assist them in implementing Pillar Two within
the agreed timeframe and in a co-ordinated manner.

Overview
The Pillar Two Model Rules consist of 10 chapters. Chapter 1 addresses questions of scope. Chapters 2-5
contain the key operative rules. Chapter 6 deals with mergers and acquisitions. Chapter 7 provides special
rules that apply to certain tax neutrality and existing distribution tax regimes. Chapter 8 deals with
administration, Chapter 9 provides for rules on transition and Chapter 10 contains definitions. As a general
matter, the Pillar Two Model Rules have been designed to make sure they accommodate a diverse range
of tax systems, including different tax consolidation rules, income allocation, entity classification rules etc.,
as well rules for specific business structures such as joint ventures and minority interests. As such, many of
the specific provisions of the Pillar Two Model Rules will not apply to all jurisdictions or each individual in-
scope MNE.

Taxpayers that either have no foreign presence or that have less than EUR 750 million in consolidated
revenues are not in scope of the Model Rules. In addition, the Pillar Two Model Rules do not apply to
government entities, international organisations and non -profit organisations (preserving domestic tax
exemptions for sovereign, non-profit and charitable entities), nor do they apply to entities that meet the
definition of a pension, investment or real estate fund (preserving the widely shared tax policy of not
wishing to add an additional layer of taxation between the investment and the investor). These entities are
excluded even if the MNE group they control remains subject to the rules.

Taxpayers in scope of the rules calculate their effective tax rate for each jurisdiction where they operate,
and pay top-up tax for the difference between their effective tax rate per jurisdiction and the 15% minimum
rate. Any resulting top-up tax is generally charged in the jurisdiction of the ultimate parent of the MNE. A
de minimis exclusion applies where there is a relatively small amount of revenue and income in a
jurisdiction. The Pillar Two Model Rules also contemplate the possibility that jurisdictions introduce their
own domestic minimum top-up tax based on the GloBE mechanics, which is then fully creditable against
any liability under GloBE, thereby preserving a jurisdiction’s primary right of taxation over its own income

OECD

© OECD