On November 8, 2019, the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting released a public consultation document concerning certain features of the Global Anti-Base Erosion Proposal under Pillar Two (“GloBE Proposal”). The GloBE Proposal seeks to develop a coordinated set of rules that limit or prevent the continued use of tax structures allowing multinationals to shift profit to low or no tax jurisdictions. As contemplated, these rules aim to ensure that profits of multinationals are subject to a minimum tax rate.
The imposition of a global minimum tax rate would represent a significant change to the global international tax architecture. Such a tax is intended to aggressively reduce incentives for taxpayers to engage in profit shifting and to establish a floor for tax competition among jurisdictions. Successful implementation of the global minimum tax, and the proposed Pillar Two solutions more broadly, will require significant coordinated and multilateral action.
The timeline established by the OECD for reaching consensus and for publishing a solution in a final report is tight, motivated primarily by the desire to keep countries from taking unilateral actions on digital economy issues. Comments on the discussion document were due on December 2, 2019 and public consultations were held in Paris just a week later on December 9, 2019.
By the December 2, 2019 deadline, the OECD had received comments from 186 parties. There is substantive support of the underlying intent of the GloBE Proposal, but the imposition of a global minimum tax is divisive. Among EU members, for example, countries with lower tax rates strongly oppose the global minimum tax, while those with higher rates expressly favor it. The U.S. Treasury Secretary, Steven Mnuchin, stated that “[t]he United States also fully supports a GILTI-like Pillar 2 solution” despite asserting serious concerns in relation to the Pillar One proposal released in October. Regardless of position, many lawmakers are demanding additional analysis to assess the economic impacts of the proposed minimum tax, and continued debate and negotiation is certain.
The final OECD report should be issued in late 2020 in accordance with the timing mandate from the G20. Over the next year, multinationals and tax practitioners should continue to monitor the public discussion and developments from the Inclusive Framework. These activities are shaping the global tax system, regardless of motivation. The OECD’s announcement and consultation document is available here.