France proposes one-year delay to global minimum business tax

Thursday, 17 March 2022
The European Union's French presidency has proposed delaying implementation of the OECD/G20 Global Anti-Base Erosion (GLoBE) Rules by at least a year.
global tax

The European Union's French presidency has proposed delaying implementation of the OECD/G20 Global Anti-Base Erosion (GLoBE) Rules by at least a year.

The GLoBE rules, agreed in December 2021, will impose a 15 per cent global minimum corporation tax on large multinational companies, among other measures designed to ensure that they pay taxes in countries where they have a customer base but no permanent establishment. These will consist of two interlocking rules: an Income Inclusion Rule (IIR) and an Under Taxed Payments Rule (UTPR). The rules will be implemented in the EU by means of a directive, originally scheduled to come into force in January 2023. However, there is disagreement among Member States about the details and timing, according to Bezhan Salehy of UK law firm Macfarlanes. Estonia, Malta, Poland and Sweden have raised several concerns, despite their earlier agreement to the OECD deal as members of the Inclusive Framework on Base Erosion and Profit Shifting (BEPS).

As a result the EU presidency has proposed a compromise text containing a number of changes to the directive, in particular a suggestion of a 12-month delay. This would mean that EU Member States would be expected to implement the IIR for tax years beginning on or after 31 December 2023 instead of 1 January 2023, and the UTPR on or after 31 December 2024.

A further change introduces the option for certain Member States to elect to defer the application of the directive until fiscal years beginning as from 31 December 2025, if the state has no more than ten groups headquartered in its jurisdiction that are in the scope of the directive. This temporary deferral mechanism appears to be designed to address concerns from Estonia that it will need more time to restructure its domestic tax system, which levies taxes on profits as they are distributed by companies, rather than when accrued, says law firm Baker McKenzie. However, there is a trade-off in that the UTPR would then be applied by other Member States to the companies located in the electing jurisdiction one year earlier, in 2024.

Those concessions were not enough to reach a consensus when the EU's Economic and Financial Affairs Council (ECOFIN) met on 15 March 2022. Unanimity is required for the directive to progress, says Salehy, so the EC will be hoping for agreement at the next meeting of EU finance ministers scheduled for 5 April 2022. 'The question is what further concessions France may be willing to offer to reach the unanimity that is required to progress the directive', says Baker McKenzie.

Meanwhile the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) has released a much-awaited commentary aimed at promoting a consistent and common interpretation of the GloBE rules, along with detailed technical guidance on the so-called Pillar Two model rules.

Stakeholders are being invited to comment on:

  • whether further administrative guidance is needed;
  • whether the information collection, filing obligations and record keeping requirements under GloBE could be improved;
  • measures to reduce compliance costs for multinational enterprises including through simplifications and the use of safe harbours; and
  • mechanisms to maximise rule coordination, increase tax certainty and avoid the risk of double taxation.

The current guidance still leaves some fundamental issues unanswered, such as how the GLoBE rules will coexist with the US' Global Intangible Low-Taxed Income (GILTI) regime, says Baker McKenzie. 'That the OECD has not been able to put forward any proposals for discussion may potentially indicate there are quite significant differences of opinion within the Inclusive Framework on what would be acceptable', said the firm.

Comments on the OECD's paper are invited no later than 11 April 2022.


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