The introduction of the global minimum tax (GloBE, also known as Pillar Two) leads to criticism by affected firms: complying with the rules is highly complex. In cooperation with the OECD, TRR 266 researcher Deborah Schanz, together with Joachim Englisch from WWU Münster and their teams propose a way to make the tax more attractive for firms by minimizing their compliance costs. Their solution: firms should be exempted from filing a GloBE declaration for those countries where it is likely that they easily meet the agreed minimum tax rate.
In 2021, 137 countries reached an agreement on a global minimum tax, aiming at large corporations paying their fair share. As more details about the Pillar Two framework are revealed, affected firms criticize the effort and challenge to comply with the new rules. For example, each company will be required to submit a so-called “GloBE declaration” for each country in which the firm operates. This declaration serves to specify the firm’s effective tax rate in that country and to confirm whether it is below the minimum tax rate of 15%.
In anticipation of the approaching negotiations on how to facilitate compliance with Pillar Two, we were invited by the OECD to propose a simplification to the rules. After careful examination of all possibilities, we found a viable simplification: companies should be exempted from submitting a full GloBE declaration for those countries where they will most likely pay taxes at a rate above the minimum tax rate of 15%.
Specifically, we propose a design option for an administrative safe harbor based on the “Tax Administrative Guidance” approach mentioned in the 2020 Pillar Two Blueprint. It allows MNEs to use existing information to avoid having to calculate a full GloBE effective tax rate for a particular jurisdiction. While still ensuring an objective and fair assessment of all interested jurisdictions.
A proper simplification of the Pillar Two rules laid out so far will be key to foster acceptance and facilitate compliance for affected firms. We hope that our proposal helps to inform the debate around possible simplifications of the Pillar Two rules. Considering the tight schedule for the implementation of the minimum rules, policymakers will need to find a viable solution quickly.
To cite this blog:
Englisch, J., Harst, S., Schanz, D., Siegel, F. (2022, Februar 17). Simplification of the global minimum tax: a simple yet viable solution., TRR 266 Accounting for Transparency Blog. https://www.accounting-for-transparency.de/blog/simplification-of-the-global-minimum-tax-a-simple-yet-viable-solution/
good solution is this workable in different countries? thank you for sharing
Thank you for your comment! We have tested the feasibility of our simplification proposal already in the case of Germany. This case study was also published as part of our publications in Intertax (https://doi.org/10.54648/taxi2022019) and on SSRN (https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3984349). Therefore, we are confident that our simplification safe harbor works also in different countries. In addition, we would also argue that developing countries would benefit greatly from our simplification proposal if these countries would receive the right to rely on our proposed safe harbor instead of having to demand and audit full GloBE income calculations.
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Thank you very much for your comment and the interest in our research! We have also published an updated version of our simplification proposal last year. This updated proposal titled "A Simplification Safe Harbor for Pillar 2" is available in Tax Notes International, Vol.106, No.12, S. 1513-1523.
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