According to BIAC, OECD “complex” minimum tax rules pose “major political problems” – Taxation of multinational companies

By Doug Connolly, Multinational Corporate Taxation

In a January 6 letter to the OECD, the business advisory group Business at OECD (BIAC) criticizes “significant policy inconsistencies” in the rules of the OECD global minimum tax model that it considers “Potentially fatal” for their operation. In addition, he argues that efforts must be made to reduce the overall complexity of the rules, which could lead to “years of uncertainty and instability”.

BIAC admitted that it had found no technical issues that would hamper the operation of the Model Rules, which the OECD released last month. However, taken together, the rules have a “cumulative” complexity that will be a “struggle” for taxpayers to comply with and for tax authorities to administer. This is especially true given the tight implementation schedule with laws that are still largely unwritten. Accordingly, BIAC urges the OECD to focus its work on safe havens and reducing complexity.

The first of the two “inconsistencies” identified by BIAC in the model rules is a provision (Article 4.1.5) which, according to the group, applies an additional global anti-base erosion tax (GloBE) to multinational groups even when they have no income in a jurisdiction in a year. He acknowledges that there is a policy rationale for the way the provision has been drafted to avoid sheltering under-taxed income, but suggests that there are other ways to address the problem without taxing. tax in the absence of income.

Regarding the other reported policy inconsistency, BIAC says the model rules deviate from a policy principle set out in the OECD Blueprint for 2020 that the effective tax rate should be reviewed over a period of time. time to “neutralize the consequences arising from the application of the accounting concept according to the GloBE rules. BIAC maintains that this objective is compromised by a provision (Article 4.4.1) which recast deferred tax balances to the minimum rate. Such an approach, argues BIAC, will result in double taxation.

The letter adds that there are other potential double taxation issues in the rules, which BIAC intends to comment on in subsequent correspondence. As an example, it notes that the rules require that an adjustment be made to GloBE’s calculations for a previous year when there is a decrease in the entity’s tax liability for the previous year. However, there is no corresponding possibility to adjust GloBE calculations for a previous year when there is an increase in an entity’s tax liability for the previous year.

BIAC also mentions some remaining issues that still require special attention. On the one hand, the interactions between the minimum tax and the first pillar will have to be resolved once some outstanding issues with the first pillar have been resolved. Additionally, additional guidance will be needed to address the uncertainty in the event that the U.S. Low Tax Global Intangible Income (GILTI) regime is not deemed to be a qualifying income inclusion rule.

Doug Connolly is editor-in-chief of MNE Tax. He has over 10 years of experience in tax legal developments, previously working with both a Big Four firm and a leading legal publisher. He holds a law degree from American University Washington College of Law.