Pillar Two: Further administrative guidance released
The OECD's Inclusive Framework has issued its fourth administrative guidance on the implementation of the model global minimum tax rules and information on the process of recognising the qualified status of domestic top-up tax.
On 17 June 2024, the OECD published further information on the global minimum (top-up) tax under Pillar Two.
The fourth set of administrative instructions contains unifying information on the following:
- principles for aggregating various categories of deferred tax liabilities to determine whether they have been settled and paid within 5 subsequent taxable periods and therefore there is no need to subsequently reduce the amount of tax included
- methods for determining deferred tax assets and liabilities for the purpose of top-up tax
- allocation of current and deferred cross-border taxes
- rules for allocating profits and taxes in fiscally transparent arrangements
- rules for determining top-up taxes for securitisation vehicles.
In the course of the work on the global minimum tax, the possibility of introducing a domestic top-up tax was added. This will allow profits subject to the minimum tax to be taxed at the level of the jurisdiction in which they are generated and not only at the level of the parent companies. The model rules thus include a specific sequence of steps that prevent a jurisdiction from imposing additional tax on low-taxed group profits where those profits have already been taxed under "qualified" rules in another jurisdiction.
At the same time, a simplified process has been introduced for verifying whether a top-up tax in each jurisdiction is deemed to be qualified. This ensures that tax is levied at the same level as would be levied at the level of the parent companies. The OECD has now published a Q&A document summarising the main features of this transitional qualification mechanism.