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OECD GloBE consultation focuses on details but overall design remains hazy

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Additional clarity on the GloBE proposal is awaited.

Mark Martin and Thomas Bettge of KPMG in the US examine the OECD’s public consultation document under Pillar Two of its work on the tax challenges of the digitalisation of the economy.

On November 8, the OECD released a public consultation document under Pillar Two of its work on the tax challenges of the digitalisation of the economy, which focuses on a proposed Global Anti-Base Erosion (GloBE) minimum tax framework. The release precedes a December 9 public consultation meeting on Pillar Two, and follows on the heels of a public consultation document released in October on Pillar One, which concerns the allocation of taxing rights and profits.



The GloBE proposal, which was first announced in the OECD’s May 2019 Programme of Work on the digital economy, aims to prevent profit shifting by imposing a global minimum tax. The proposal contemplates four distinct but related rules: 

  • an income inclusion rule, which would apply a top-up tax approach where a foreign entity or branch pays tax at a rate below a minimum rate; 

  • a switch-over rule, which would generally permit residence jurisdictions to switch from an exemption method to a credit method where the profits attributable to a permanent establishment (PE) or derived from immovable property (which is not part of a PE) are subject to an effective rate below the minimum rate; 

  • an undertaxed payments rule, which would deny deductions for payments to related parties that are not subject to tax at the specified minimum rate; and

  • a subject to tax rule, which would subject payments taxed below the minimum rate to withholding by switching off treaty benefits.


The applicable minimum tax rate has yet to be determined, though the consultation document uses 15 percent in several examples. While the document makes it clear that this rate was selected for illustrative purposes only, it nonetheless gives some indication of what the OECD considers reasonable. Ultimately, the consultation document does not speak to what rate may be appropriate, but instead seeks input on three issues:


  • the proper tax base for the income inclusion rule, with a specific focus on the use of financial accounts and the need for adjustments to eliminate differences between financial and tax reporting;

  • the appropriate level of blending high-tax and low-tax income, looking at blending on a global, jurisdictional, and entity-by-entity basis; and

  • carve-outs and thresholds.


While solutions will ultimately be determined following the consultation process, it appears that the OECD may be tentatively inclined towards employing parent entities’ consolidated financial accounts as the starting point for determining the GloBE tax base. Such accounts would likely be acceptable for this purpose as long as they are prepared in accordance with acceptable financial accounting principles, such as the International Financial Reporting Standards (IFRS) or U.S. or Japanese generally accepted accounting principles (GAAP). Identifying and addressing potential differences between each of these financial reporting standards and tax reporting will likely pose significant challenges.




The document acknowledges that global blending would reduce many of the complexities posed by a jurisdictional or entity-specific approach, such as those associated with crediting foreign taxes and taking intragroup dividends into account. However, some stakeholders may argue for a jurisdictional or entity-specific approach on the grounds that it would be more effective in preventing profit shifting, as global blending would permit taxpayers to obtain a benefit from low-taxed income to the extent they have offsetting high-taxed income.  



With respect to carve-outs, perhaps the most important issue not touched on in the consultation document is whether a carve-out would be available for taxpayers subject to the U.S. global intangible low-taxed income (GILTI) rules and similar regimes. The GloBE income inclusion rule resembles GILTI, which does not operate through a top-up, but is generally intended to apply only in cases with a foreign tax rate of less than 13.125%. Although the consultation document does not reference GILTI, some stakeholders have suggested that the OECD should embrace GILTI and other existing tax regimes as functionally equivalent to the income inclusion rule, and should specify that the latter does not apply to taxpayers who are subject to the former. Whether GILTI is white-listed in this fashion would have important ramifications for U.S. multinationals.

While the public consultation document seeks to explore a number of specific issues, it may be challenging for stakeholders to provide meaningful input in these areas, given how much of the GloBE architecture remains to be determined. For instance, one key question is the ordering and coordination of the four rules described above: a regime which applies the income inclusion rule only as a backstop to an undertaxed payments rule would be very different from one which relies first and primarily on the income inclusion rule, and these differences may impact the tax base, level of blending, and carve-outs that are needed. Given the OECD’s stated aim of achieving high level consensus by January 2020, it is to be hoped that additional clarity on the overall design of the GloBE proposal will soon be provided.


Thomas Bettge

T: +1 713-319-2173 

E: tbettge@KPMG.com       



Mark Martin

T: +1 713-319-3976

E: mrmartin@KPMG.com


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