- 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 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.
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.
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