The OECD’s Pillar Two ‘GloBE’ proposal: Public Consultation held

The OECD’s Pillar Two ‘GloBE’ proposal

Initial insights from the Pillar Two public consultation.


Partner, Deal Advisory Tax, Corporates Lead

KPMG in the UK


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On 9 December 2019, a public consultation on the OECD Secretariat’s Pillar Two ‘Global Anti-Base Erosion’ (GloBE) proposal was held in Paris. The public consultation focused on key questions identified in the consultation document published on 8 November 2019. Pillar Two centres on specific technical issues in respect of the GloBE proposal, which itself focuses on what the OECD regards as ‘the remaining BEPS issues’ by providing jurisdictions with a right to ‘tax back’ where other jurisdictions have not exercised their primary taxing rights over profits, or where a payment is otherwise subject to low levels of effective taxation. It essentially looks at introducing a globally-agreed minimum standard on direct tax matters that will ensure that all internationally operating businesses pay a minimum level of tax. The OECD has received a multitude of comments on Pillar Two.

The Pillar Two consultation document provides little clarity on where the OECD has landed on the GloBE design features, and the document leaves many questions unanswered at this stage. There are complex issues to consider with the wide-ranging nature of the proposals, as well as complexities concerning choosing between the various blending rules, and considering potential carve-outs to the new rules. The following considerations will be taken into account by the OECD going forwards:

  • Pillar Two is complex and the OECD might need to consider how it can minimise the burdens of these new rules on various stakeholders, while achieving its goals. Any new rules should be proportionate and not hinder economic growth. In fact, the consultation document provides that the rules need to be clear, fair and easy to understand. Moreover, it remains to be seen whether carve-outs depending on for instance, sector or size, will be considered in order to simplify the rules;
  • Uncertainty remains as to which type of blending rule the OECD will go for. The consultation document had provided that rules are needed in order to set out the extent to which low-tax and high-tax income within the same legal entity or across different entities within a group can be blended. Three forms of blending were put forward – worldwide blending (consistent with global intangible low-taxed income (GILTI)), jurisdictional blending, and entity-by-entity blending;
  • The OECD needs to find agreement on a universal tax base for the new income inclusion rule in particular. The fact that there are differences between various forms of generally accepted accounting practice (GAAP) is a particularly tricky consideration in finding consensus. There are also important adjustments between tax and GAAP accounting that could cause complexities. These will need to be considered by the OECD.
  • The OECD is also working towards a very tight deadline; consensus of over 130 members of the Inclusive Framework is required by the end of 2020. Against this backdrop, it is likely that another consultation on Pillar Two will be needed to further discuss the rules. Early indications are that this will take place in March or April 2020. One must not forget that Pillar One and Pillar Two, taken together, could fundamentally alter international tax rules – the biggest change since the 1920s; and
  • It remains to be seen whether jurisdictions will continue to act unilaterally in the taxation of the digitalised economy space. This is something that the OECD has always cautioned against. In the absence of multilateral action, there is however still a real risk of further uncoordinated unilateral action.

With 2020 on our doorstep, we can look back on a year where the taxation of the digitalised economy was a particularly hot topic. We expect that this topic will yet again be high on the agenda of tax policy makers, business and practitioners alike in the coming year. We await developments as the OECD continues to work to deliver on its tight deadlines.

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