The Global Minimum Tax | Selected Issues on Pillar Two

1. Introduction

Article 4.1 of the OECD GloBE Model Rules outlines the general rule for covered taxes which are allocated to the jurisdiction where the CE that reports the taxes in its financial statements is located. However, the OECD provides for exceptions under Article 4.3 that introduces reallocation rules that differ from the general rule. The reasons for these exceptions from the general allocation rule are simple: In order to consistently apply a jurisdictional blending approach for the computation of the ETR, the numerator of the ETR fraction needs to correspond to its denominator. Thus, if, e.g., a jurisdiction taxes income that is allocated to a different jurisdiction, in order to achieve corresponding figures in both elements of the ETR fraction, the tax levied by the first jurisdiction on income assigned to another jurisdiction needs to be reallocated to the latter. Otherwise, there would be S. 438a risk that certain taxes would either be included in the ETR fraction of either or both jurisdictions. Both results would, evidently, lead to an undesirable result from a policy perspective.

This chapter aims to analyze the territorial allocation rules for covered taxes under the OE...