The OECD has released its guidance on the CBCR safe harbour mechanism, the GLoBE information return and dispute prevention/resolution.
There are three main papers:
- The safe harbour guidance is here
- The information return is here
- The dispute prevention/resolution information is here
The transitional safe harbour is quite generous in terms of time (spanning to periods beginning in 2026). Jurisdictions which fall within a safe harbour will have time to work on their data and on their returns. It does not help low tax jurisdictions. Although the simplifications are welcome, there is still a lot of detail to process and we will be reviewing that detail over the coming weeks and providing a response to the OECD in the New Year.
The key take-away points from our initial review are:
- Even if a constituent entity is within the safe harbour, the group will still need to submit a GLoBE information return.
- Investment entities (and insurance investment entities) still require separate calculations
- The temporary regime gives zero top up tax where:
- the MNE Group reports Total Revenue of less than EUR 10 million and Profit (Loss) before Income Tax of less than EUR 1 million in such jurisdiction on its Qualified CbC Report for the Fiscal Year; or
- the MNE Group has a Simplified ETR that is equal to or greater than the Transition Rate in such jurisdiction for the Fiscal Year; or
- the MNE Group’s Profit (Loss) before Income Tax in such jurisdiction is equal to or less than the Substance-based Income Exclusion amount, for constituent entities resident in that jurisdiction under the CbCR, as calculated under the GloBE Rules.
We have some new definitions to learn:
Simplified Covered Taxes is a jurisdiction’s income tax expense as reported on the MNE Group’s Qualified Financial Statements, after eliminating any taxes that are not Covered Taxes and uncertain tax positions reported in the MNE Group’s Qualified Financial Statements.
Simplified ETR is calculated by dividing the jurisdiction’s Simplified Covered Taxes by its Profit (Loss) before Income Tax as reported on the MNE Group’s Qualified CbC Report.
Transition Period covers all of the Fiscal Years beginning on or before 31/12/2026 but not including a Fiscal Year that ends after 30/6/2028.
Transition Rate means:
- 15% for Fiscal Years beginning in 2023 and 2024;
- 16% for Fiscal Years beginning in 2025; and
- 17% for Fiscal Years beginning in 2026.
The safe harbour guidance includes the transitional mechanism and a chapter on the development of a permanent safe harbour.
The information return and dispute resolution/prevention documents are consultations with response deadlines of 3 Feb 2023.