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Tax Policy Alert
OECD releases Administrative Guidance
on the Pillar Two Global Minimum Tax
Rules
7 February 2023
In brief
The OECD released Administrative Guidance (‘guidance’) on the Pillar Two Global Anti-Base Erosion Rules (GloBE
Rules) on 2 February. The guidance was approved by the OECD/G20 Inclusive Framework on BEPS (IF) and is
theref ore not subject to public consultation. The guidance primarily focuses on (some but not all) previously
unaddressed areas under the GloBE Rules.
This guidance addresses a wide range of issues identified by IF members as most in need of immediate
clarif ication and simplification. The guidance will be incorporated into a revised version of the GloBE Commentary
and Examples that will be released later this year, replacing the original version issued in March 2022 (see our
PwC Alert). While the OECD indicated
that this guidance represents the ‘final piece of work’ on the GloBE Rules
that IF members committed to deliver as part of the GloBE implementation framework, it also stated that the IF will
continue to release further guidance on an ongoing basis (i.e., in smaller packages) to ensure that the GloBE Rules
continue to be implemented and applied in a coordinated manner. For reference, the OECD previously released
guidance related to Safe Harbours and Penalty Relief in December 2022 (see our
PwC Alert).
Significantly, the guidance confirms the status of the United States’ minimum tax (known as the Global Intangible
Low-Taxed Income, or 'GILTI') as a CFC Tax Regime under the GloBE Rules. It also sets out a mechanical
allocation formula for GILTI and other ‘Blended CFC Tax Regimes,’ and provides guidance on Qualified Domestic
Minimum Top-up Taxes (QDMTT) and the treatment of (some) credits and incentives; all important issues for the
business community.
In detail
This Alert provides an overview and initial observations on key issues addressed in the guidance as follows:
I. Accounting Developments (FASB & IASB) (page 2)
II. QDMTT (Article 10.1) (page 2)
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III. Allocation of Taxes arising under a Blended CFC Tax Regime (e.g., GILTI) (page 3)
IV. Guidance on Scope (page 4)
V. Income & Taxes (page 5)
VI. Insurance Companies (page 7)
VII. Transition Period Issues (page 8)
I. Accounting Developments (FASB & IASB)
The issuance of the OECD guidance coincides with a recent development on the accounting front. On 1 February
2023 the staf f of the Financial Accounting Standards Board (FASB) shared that they believe the GloBE Top-up Tax
is an alternative minimum tax as provided for under US GAAP (see PwC Insight
). As an alternative minimum tax,
no def erred taxes would be recorded for the future estimated impact of Pillar Two. Instead, any Top-up Taxes
would be accounted for in the period in which they are incurred.
Observation : This conclusion is helpful to reporting entities that will need to account for Pillar Two taxes as various
jurisdictions begin to enact related legislation.
Prior to the view from the FASB staff, the international standard setter also took action with regard to the
accounting for Pillar Two. On 9 January 2023, the International Accounting Standards Board (IASB) issued an
Exposure Draft proposing amendments to IAS 12. The proposed amendments would introduce a temporary, but
mandatory, exception to the accounting for deferred taxes arising from the implementation of the Pillar Two rules
along with extensive disclosure requirements (see our In brief
for more details).
Observation : Companies should continue to monitor the IASB’s standard-setting process for completion.
II. QDMTT (Article 10.1)
The QDMTT was not covered at length by the December 2021 GloBE Rules. The guidance sets out the hallmarks
of a QDMTT f or countries that decide to adopt one. Under the guidance, a minimum tax can qualify as a QDMTT
only if it is implemented and administered in a way that is consistent with the outcomes provided under the GloBE
Rules and Commentary.
A. Generally
Article 10.1 of the GloBE Rules defines QDMTT as a tax that is included in the domestic law of a jurisdiction and
that:
• Determines the Excess Profits of the constituent entities located in the jurisdiction (domestic Excess
Prof its) in a manner that is equivalent to the GloBE Rules;
• Operates to increase the domestic tax liability with respect to domestic Excess Profits to the Minimum Rate
f or the jurisdiction and constituent entities for the Fiscal year; and
• Is implemented and administered in a way that is consistent with the outcomes provided for under the
GloBE Rules and Commentary, provided that such jurisdiction does not provide any benefits that are
related to such rules.
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The guidance provides two additional 'guiding principles' in determining whether a minimum tax is functionally
equivalent to the GloBE Rules and therefore qualifies as a QDMTT. The minimum tax must (1) be consistent with
the design of the GloBE Rules; and (2) provide for outcomes that are consistent with the GloBE Rules.
Generally, QDMTT computations will require the same data points as the GloBE Rules. However, the guidance
allows f or variation in design, stating “[s]ome degree of customisation of a QDMTT in each jurisdiction is to be
expected” and “[v]ariations in outcomes between the minimum tax and GloBE Rules will not prevent that tax from
being treated as a QDMTT if those variations systemically produce a greater incremental tax liability.” The guidance
notes that a QDMTT is not required to have a substance-based carveout or de minimis income exception; if it does,
it cannot be more expansive than those exceptions permitted under the GloBE Rules.
The guidance notes that the IF will consider providing further guidance on the information collection and reporting
requirements under a QDMTT. The guidance also states that the IF will work on a 'QDMTT safe harbour' measure
and a multilateral review process for assessing countries’ QDMTTs.
B. CFC taxes
To be a Qualified Domestic Minimum Top-up Tax, the regime must exclude tax paid or accrued by domestic
constituent entities (CEs) with respect to the income of foreign CEs under its own CFC regime. A jurisdiction under
a QDMTT regime can go even further and exclude all taxes that it imposes on a f oreign CFC or hybrid entity.
QDMTTs must also generally exclude cross-border taxes paid by a CE owner under a CFC regime that are
allocable to a domestic CE, as well as taxes paid by a main entity that are allocable to a permanent establishment
located in the QDMTT jurisdiction.
Observation : In practice, this means that a QDMTT will apply first (i.e., before CFC allocations and application of
the IIR or UTPR). For countries that adopt a QDMTT, any allocation of taxes paid under GILTI will not be taken into
account when determining the local QDMTT liability. The guidance notes that this approach would remove the need
f or “the complex calculations required in some cases to allocate CFC taxes… to be reported to a jurisdiction that
implements a QDMTT.” It will be important to clarify whether a QDMTT will be creditable for US foreign tax credit
(FTC) purposes. Further, for US taxpayers that are 'excess GILTI credit,' this ordering rule is expected to result in
double taxation as none of the additional QDMTT is expected to be creditable in the United States against the
GILTI tax liability (normally arising from expense apportionment).
Observation: While there could be a tendency to view the GloBE Rules as impacting only large MNE Groups (e.g.,
those with revenue over the EUR 750 million threshold), a QDMTT can be applied to small MNE Groups and to
purely domestic groups. The QDMTT guidance explicitly provides that “the application of a QDMTT could be
extended to groups whose UPE is located in the jurisdiction but that are not within the scope of the GloBE Rules
because their revenues are below the EUR 750 million threshold … [f]urthermore, a QDMTT could also apply to
purely domestic groups, i.e. groups with no foreign subsidiaries or branches.”
III. Allocation of taxes arising under a Blended CFC Tax Regime (e.g., GILTI)
Article 4.3.2(c) of the GloBE Rules require the allocation of some CFC taxes from the CE-Owner that is subject to a
CFC regime to the CFC that gave rise to the CFC charge. However, a specific methodology is not prescribed and
the Commentary states that CFC taxes should be allocated based upon a CE’s share of the underlying income.
The guidance clarifies how CFC taxes should be allocated when such taxes are generated under a 'Blended CFC
Tax Regime.' This is a CFC tax that is “computed based on a blend of income, losses and / or creditable taxes of
multiple CFCs whose ownership interests are held by a constituent entity-owner (or multiple constituent entity-
owners that f ile a single tax return)”. The guidance specifically confirms that GILTI, in its current form, meets the
def inition of a CFC Tax Regime under the GloBE Rules. The guidance also states that GILTI is an example of a
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Blended CFC Tax Regime and outlines an agreed “simplified allocation that can be applied to Blended CFC Tax
Regimes, including GILTI, f or a limited time period.”
The guidance sets out a mechanical allocation formula (page 68) that calculates how much of the Blended CFC
Tax a company paid is attributable to individual jurisdictions for the GloBE computations.The f ormula allocates
Blended CFC Taxes by taking into account a ratio of income as computed under the principles of the Blended CFC
Tax Regime and the difference between the GloBE ETR for the jurisdiction and the threshold for low taxation under
the Blended CFC Tax Regime.
Importantly, this guidance is only applicable “for Fiscal Years that begin on or before 31 December 2025 but not
including a Fiscal Year that ends after 30 June 2027.”
Observation : While CFC tax allocated under this rule is taken into account for purposes of computing the ETR f or
the jurisdiction when applying the GloBE Rules (the IIR and the UTPR), such taxes will not be taken into account
when computing the jurisdictional ETR for purposes of applying a QDMTT (see additional discussion in the QDMTT
section above), notwithstanding the statement in the guidance that a QDMTT “must be consistent with the design of
the GloBE rules.” For US MNEs, it will be important for the US Treasury to clarify whether a QDMTT will be
creditable for US FTC purposes.
IV. Guidance on Scope (Article 1.1)
The guidance clarifies various matters concerning the scope of the GloBE Rules.
A. Rebasing monetary thresholds
The guidance provides that thresholds contained in the GloBE Rules in Euros are to be rebased annually where
they have been enacted in local law in another currency. The rate to be used is the average for the December prior
to the relevant calendar year (i.e., in which each referenced Fiscal Year starts). Generally, the European Central
Bank rate should be applied.
Observation : The guidance does not address foreign currency translation of amounts other than for the purposes
of rebasing the relevant thresholds on a yearly basis in the domestic law of an implementing jurisdiction. Foreign
currency translation for the purposes of undertaking ETR calculations will be dealt with in subsequent guidance.
B. Deemed consolidation test
The deemed consolidation test (found in paragraph (d) of the definition of Consolidated Financial Statements and in
paragraph (b) of the definition of Controlling Interests) is applied where the relevant Group or Entity does not
prepare Consolidated Financial Statements using an Authorised Financial Accounting Standard. The guidance
clarif ies the application of this test and includes several illustrative examples involving privately held businesses
and investment entities that are not required and do not prepare financial statements. In these situations, the
guidance states that the MNE can choose which of any applicable Authorised Financial Accounting Standards to
use where more than one is eligible in the jurisdiction (e.g., IFRS or local GAAP). Consequently, the guidance also
states that an Entity excluded from Consolidated Financial Statements, on the basis that it is not material or is held
f or sale, is still a member of the Group.
C. Consolidated deferred tax amounts
The f inancial accounts of the CE are used to prepare the UPE’s Consolidated Financial Accounting Statements,
which are normally used to determine the Total Deferred Tax Adjustment Amount for that CE. However, if the CE’s
individual financial accounts do not contain its deferred tax expense, the guidance notes that whether this is due to
an internal accounting practice of the MNE Group or pursuant to the Accepted Financial Accounting Standard used
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to prepare its financial accounts, the deferred tax expense with respect to the CE recorded in the MNE Group’s
Consolidated Financial Accounting Statements is included instead.
D. Clarifying the definition of ‘Excluded Entity’
Entities that meet the definition of ‘Excluded Entities’ are excluded from the GloBE Rules. Where an entity is at
least 95% owned, either directly or indirectly, by an Excluded Entity or Entities, they also will be considered an
Excluded Entity if the entity: 1) operates exclusively or almost exclusively to hold assets or invest funds for the
benef it of the Excluded Entity or Entities; or 2) carries out activities that are ancillary to those carried out by the
Excluded Entity or Entities (the ‘activities test’).
The GloBE Rules and Commentary did not address situations where both of these conditions could be met. The
guidance clarifies this by stating that where all of the activities undertaken by the entity fall within the scope of the
def inition of Excluded Entity, it should be considered an Excluded Entity. The guidance also makes clear that
borrowing funds and making direct acquisitions of assets falls within the meaning of ‘holding of assets or
investment of funds’ and is not considered ‘ancillary’ for the purpose of the activities test.
Observation : The matters covered in the guidance under scope appear to be clarifications relating to an eclectic
mixture of issues. Some of the clarifications may be widely considered as meeting the guidance criterion of “issues
most in need of immediate clarification and simplification for stakeholders” but others may even fall into the
category of ‘quick and easy,’ likely raised by a small number of stakeholders. All are useful in one context or
another on the premise of ‘the more guidance the better.’ We hope that further scope issues will be clarified in due
course.
V. Income & Taxes
The most technical detail in the guidance is in Article 2, Income and Taxes. The f ollowing section provides a high-
level summary of each of the areas it addresses (the section on allocation of taxes arising under a Blended CFC
Tax Regime is covered above).
A. Intra-group transactions accounted at cost and arm’s length pricing (Article 6.3.1)
Where intra-group transactions are accounted for at cost, the GloBE Rules generally require MNE Groups to apply
the arm’s length principle (ALP) to cross-border intra-group transactions. The rationale for this rule is to protect the
integrity of jurisdictional blending. The guidance confirms that the same treatment applies under the QDMTT regime
and that the IF will undertake further work to address double tax issues without increasing compliance burdens.
Observation : The GloBE Rules are premised on the assumption that intra-group transactions are accounted for at
f air market value. Nevertheless, under some accounting standards, treatment at cost can occur between
companies in the same group, notwithstanding whether the legal transfer is at fair market value. Companies,
theref ore, should consider the treatment of intra-group transfers under the applicable accounting principles and
evaluate that for purposes of the QDMTT and GloBE Rules.
B. Excluded equity gains or losses and hedges of investments (Article 3.2.1)
The guidance provides principles that will be incorporated into the Commentary for the GloBE Rules regarding the
treatment of gains or losses on certain hedging transactions. It incorporates several examples on how to allocate
excluded equity gains or losses on hedging instruments.
C. Excluded dividends (Article 3.2.1)
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The guidance addresses concerns raised by stakeholders that MNE groups may rely on the accounting treatment
of financial instruments and the broad definition of Excluded Dividends to increase their ETR. It provides for certain
modifications to the Commentary to ensure consistent accounting treatment of equity portions of instruments.
D. Treatment of debt releases (Article 3.2.1)
The guidance limits the scope of adjustments for certain debt releases. It recognizes that in some cases, debt
releases could significantly increase Top-up Tax liability, and provides a mechanism for relief. It also notes that
certain tax planning opportunities could exist using related-party financing structures, and therefore limits the scope
of the relief to limited circumstances.
E. Accrued pension expenses (Article 3.2.1)
The guidance provides for a definition of Accrued Pension Expenses and how the earnings and expenses should
be adjusted for under the GloBE Rules.
F. Excess negative tax carry-forward guidance (Article 4.1.5 & 5.2.1)
The GloBE Rules provide for the imposition of Top-up Tax with respect to a jurisdiction in a loss year when a
permanent difference causes the domestic tax loss in that jurisdiction to be greater than the GloBE Loss for the
jurisdiction. The guidance provides MNE Groups the ability to elect an administrative procedure to carry-forward
Excess Negative Tax Expense (i.e., the Top-up Tax that would have otherwise arisen under this provision). When
the election is made, the Excess Negative Tax Expense is carried-forward and reduces Adjusted Covered Taxes in
each subsequent Fiscal Year in which there is GloBE Income and positive Adjusted Covered Taxes for the
jurisdiction, until it is exhausted.
Similarly, the GloBE Rules could impose Top-up Tax with respect to a jurisdiction in excess of the Minimum Rate
when Adjusted Covered Taxes are negative in a Fiscal Year in which there is GloBE Income. The guidance
provides that in such cases a MNE Group must apply the Excess Negative Tax Expense administrative procedure
and carry-f orward the Excess Negative Tax Expense in the same manner as described above.
G. Loss-making parent entities of CFCs (Article 4.4.1(e))
The guidance provides for a special rule with respect to losses incurred in a parent jurisdiction of a CFC that has a
tax regime which includes foreign source income and requires that such income offset domestic losses prior to
applying FTCs against the foreign source income. In such cases, under certain regimes, unused foreign tax credits
may be carried forward and applied against domestic source income in a subsequent year (the US rules in Section
904 with respect to overall domestic losses (ODLs) are a prominent example of such a regime). The guidance
notes that the GloBE Rules should not disadvantage jurisdictions that include CFC or other foreign income against
domestic losses and those that do not. Accordingly, the rule set out in the guidance permits the creation of a
Substitute Loss Carry-forward deferred tax asset in such instances.
The guidance further provides that some CFC tax regimes do not allow FTC carry-forwards but rather allow for the
use of a loss recapture mechanism that increases the FTC limitation in subsequent years. In such cases, the
guidance notes that equivalent adjustments to those described above may be made, providing that the adjustment
is not more generous than had a loss carry-forward been established at the Minimum Rate.
H. Equity gain or loss inclusion and election and qualified flow-through tax benefits (Article 3.2.1(c))
1. Equity Investment Inclusion Election
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The GloBE Rules generally exclude certain gains and losses from GloBE Income or Loss that may be exempt from
taxation under some domestic tax rules. However, when such items are within the scope of domestic taxation, an
understated GloBE jurisdictional ETR may occur in the case of an excluded loss and may produce a Top-up Tax
liability in an otherwise high-tax jurisdiction. This is because while the loss is excluded from the computation of
GloBE Income or Loss, it serves to reduce the domestic tax liability in the relevant jurisdiction, thereby reducing the
GloBE ETR for such jurisdiction.
The guidance provides for an ‘Equity Investment Inclusion Election,’ which allows a MNE Group to take certain
excluded gains or losses and the associated tax attributes into account for purposes of computing GloBE Income or
Loss and Adjusted Covered Taxes. The election is a five-year election, however, it cannot be revoked with respect
to an Ownership Interest if a loss on that interest has previously been taken into account for GloBE purposes when
the election was in effect.
2. Treatment of Qualified Flow-through Tax Benefits of Qualified Ownership Interests
The guidance sets out a special rule for certain tax credits in the context of equity method investments, by
introducing the new concept of Qualified Flow-through Tax Benefits. When an owner is subject to an Equity Method
Inclusion Election it must apply the Qualified Flow-through Tax Benefits guidance with respect to such benefits
when they f low through a Qualified Ownership Interest. This special rule is “designed to ensure the neutrality of
certain tax equity structures where such non-refundable tax credits are an essential element of the investment
return.” The rule only applies when (i) “at the time of the investment, the investor’s expected return on the
Ownership Interest would not be positive in the absence of the expected non-refundable credits and other tax
benef its; and” (ii) “to the extent the Qualified Flow-through Tax Benefits constitute a return of all or part of the
investor’s investment.”
Observation : This special rule appears targeted at tax equity structures whereby a tax credit is an essential
component of the expected return on investment. Without this rule, credits earned through equity method
investments would understate the GloBE ETR of the MNE Group receiving such credits as compared to a MNE
Group that earned a similar cash return. Relief is limited to structures where the expected return would not be
positive but for the tax credits and limited to the “extent the Qualified Flow-through Tax Benefits constitute a return
of all or part of the investor’s investment.” While this aspect of the guidance provides some welcome certainty with
respect to select tax equity structures, it falls short of providing an outright exclusion for tax credits derived through
investments accounted for under the equity method of accounting. Taxpayers with existing or future investments in
tax equity structures will need to consider the extent to which these investments may still give rise to adverse tax
consequences under the GloBE rules. Further, the guidance does not provide any analysis with respect to
nonref undable tax credits that may be transferred from one taxpayer to another, including many of the green
energy credits enacted by the US Congress in the Inflation Reduction Act.
VI. Insurance companies
A number of updates have been made to Chapter 7 of the GloBE Rules in relation to insurance companies,
primarily to reflect the fact that some elements of the rules as initially published did not appear to operate as
intended for the industry as a whole.
A. Insurance Investment Entities - Taxable distribution method
• Articles 7.5 and 7.6 of the GloBE Rules are aimed at bringing the GloBE tax treatment of Investment
Entities and Insurance Investment Entities in line with the fact that income from these entities is often
taxable in the parent entity, rather than the investment entity itself. Article 7.6 is being updated to apply to
Insurance Investment Entities in the same way it applies to Investment Entities, i.e., an election can be
made to apply the Taxable Distribution Method. This guidance reflects the fact that not all Insurance
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Investment Entities would qualify for the Transparency Election as set out in Article 7.5, due to the specifics
of local domestic tax regimes. The guidance clarifies several issues, including:
• Mutual insurance companies: The tax transparency election in Article 7.5 is also being extended to
explicitly include Insurance Investment Entities held by mutual insurance companies.
• Restricted Tier One Capital: The Additional Tier One Capital rules, which allow banks to treat distributions
on such instruments as expenses, are being extended to insurers with Restricted Tier One Capital.
• Unit linked business: Where an insurance company receives excluded dividends or records excluded
equity gains/ losses, a deduction will not be available for movements in insurance reserves which
economically match the excluded income, for example with unit linked business of life insurance
companies.
• Dividend income: Where an insurance company receives dividend income from short-term portfolio
shareholdings, it will be possible to make an election to extend the exception from the excluded dividends
rules to all dividend income from portfolio shareholdings, i.e., not just that from holdings of less than twelve
months. The purpose of this change, which could give rise to additional taxable income, is simplification, as
it would mean it is not necessary to identify the holding period at the date the dividend income is received.
• Intermediate Parent Entities/ Partially-Owned Parent Entities: The definition of both of these entities is
being updated to explicitly exclude Insurance Investment Entities.
Observation : The majority of these amendments appear to have been made in response to comments from the
insurance industry that certain elements of the rules did not operate as intended for the industry as a whole, or
were difficult to apply in practice. Note that given the complex nature of insurance investment structures and the
related accounting requirements, there may still be areas where the Article 7.5 and 7.6 elections are not available
and the practical application for some companies does not align with the intended treatment set out in this
guidance, with further work being undertaken to address these issues.
VII. Transition Period Issues
The GloBE Transition period began on 30 November 2021 and will run until the commencement of the Transition
Year (i.e., the f irst accounting period for which the group falls within the scope of the GloBE rules, expected to be
2024). During this period, certain transactions and attributes are subject to special rules known as transition rules.
The transition rules provide the basis for taxpayers to use carried forward deferred tax assets (DTAs) and liabilities
(DTLs) as part of their jurisdictional Top-up Tax calculations. Some of the issues that are dealt with in this transition
guidance are set out below.
A. Tax credit attributes (Article 9.1.1)
The guidance sets out additional details with respect to the treatment of tax credit attributes created prior to the
Transition Year under the GloBE Rules. Importantly, the guidance clarifies that deferred tax attributes related to tax
credits, including FTC carry-forwards, may be carried-forward into the GloBE Rules and taken into account when
computing Adjusted Covered Taxes. These tax credit carry-forwards must be recast at the lower of the Minimum
Rate or the rate at which the credit was recorded. A simplified formula for recasting FTC carry-forwards is set out in
the guidance. DTAs accounted for at a rate lower than 15% remain unchanged for GloBE purposes.
The guidance also confirms that the settlement of any refundable tax credit arising prior to the Transition Year shall
not reduce Adjusted Covered Taxes, regardless of whether the credit relates to a qualified refundable tax credit
(QRTC) or a non-qualified refundable tax credit (Non-QRTC).
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Observation : The guidance states that “under Article 9.1.1, a Constituent Entity’s tax attributes at the beginning of
the Transition Year shall include any deferred tax asset that was not recognised because the recognition criteria
was not met.” This is welcome guidance for taxpayers who have attributes that they record for local tax purposes,
but which are not recognised in the financial statements. This guidance follows the existing guidance for loss DTAs
that are unrecognised in the financial statements but can be used in computing the Adjusted Covered Taxes, and
extends this position to other classes of DTAs.
B. Intra-group asset transfers (Article 9.1.3)
One of the main concerns of stakeholders responding to the GloBE Rules was in respect of the position outlined for
intra-group transfers of assets that take place in the Transition Period. Article 9.1.3 of the GloBE Rules provides
that the acquiring entity must use the disposing entity’s carrying value at the time of the transfer for the purposes of
GloBE computations. This is despite the fact that the acquiring entity may have taken a cost or fair value basis in
the asset f or local tax purposes and regardless of whether the transfer was taxable. This rule aims to prevent a step
up in value of the asset for the acquirer where the asset transferred tax-free or subject to low tax prior to the GloBE
rules, but the rule was worded such that it applied to all commercial asset transfers.
The guidance aims to clarify the application of Article 9.1.3 to intra-group transactions booked at cost or fair value
at the level of the acquiring CE. Generally, the guidance provides that for transactions booked at cost where the
disposing CE is taxed, a DTA based on the lower of the 15% rate or the rate of tax applicable in the selling
jurisdiction may be taken into account. For transactions booked at fair value, a CE may use the booked value (i.e.,
f air value) only if it would have been entitled to a DTA for the difference between fair value and historic carrying
value multiplied by the Minimum Rate. However, Example 7 illustrates that a DTA may be taken into account in fair
value transactions, following the principles discussed above, when the booked value is not stepped up to fair value
under the guidance. Further, a similar outcome can arise where tax is not paid but the disposing entity utilises an
attribute that would have otherwise been available under Article 9.1.1 of the GloBE Rules if not for the fact the
income was taxed locally upon the disposition.
Observation : This guidance will still result in harsh outcomes for some commercial transactions in applying the
transitional intra-group transfer rules. The DTAs that can be created where the asset transfer has been taxed have
limited usage.
The takeaway
The administrative guidance is helpful for some issues, such as equity method accounting and CFC tax allocations,
although many uncertainties remain with respect to the interpretation of the GloBE Rules, and the guidance will
undoubtedly give rise to additional questions. The QDMTT provisions appear to allow divergence between
countries, and business will hope that more work will be done to ensure alignment of countries’ implementation of
these rules. While the guidance notes that the IF will undertake further work on the development of a QDMTT safe
harbour, lack of progress on this critical element may suggest that IF members are f ar apart on some of the
underlying principles. Issues linked to general business credits and the interaction with the UTPR in a parent
jurisdiction like the United States are also open questions. It will take time to analyse the full implications of the
guidance to specific fact patterns and business models. Taxpayers should model the outcomes of the guidance as
soon as possible given the rapid influx of individual jurisdictions moving forward with implementing these rules.
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Let’s talk
For a deeper discussion of how the Pillar Two administrative guidance might affect your business, please contact:
Tax policy leadership
Stef van Weeghel, Amsterdam
+31 0 88 7926 763
stef .van.weeghel@pwc.com
Will Morris, Washington
+1 202 213 2372
william.h.morris@pwc.com
Edwin Visser, Amsterdam
+31 0 88 7923 611
edwin.visser@pwc.com
Tax policy contributors
Pat Brown, United States
+1 203-550-5783
pat.brown@pwc.com
Phil Ramstetter, United States
+1 (513) 254 6201
philip.s.ramstetter@pwc.com
Jennifer Spang, United States
+1 973-202-6401
jennif er.a.spang@pwc.com
Tax policy editors
Phil Greenfield, United Kingdom
+44 (0) 7973 414 521
philip.greenfield@pwc.com
Chloe O’Hara, Ireland
+353 (0) 87 7211 577
chloe.ohara@pwc.com
Stewart Brant, United States
+1 (415) 328 7455
stewart.brant@pwc.com
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