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Favorable Temporary Relief for Pillar Two

The OECD has released 2023 July Administrative Guidance concerning implementation of the Pillar Two GloBE Tax. Read on for details on the guidance.
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On July 17, 2023, the Organisation for Economic Co-operation and Development (OECD) released administrative guidance (the 2023 July Administrative Guidance) concerning implementation of the Pillar Two global minimum tax (GloBE Tax) that will be integrated into a revised version of the original commentary related to the OECD Model Rules released on December 20, 2021. The revised commentary of the OECD Model Rules is expected to be released on a later date during the 2023 calendar year. The 2023 July Administrative Guidance represents the second administrative guidance released by the OECD this year as it comes in direct response to the administrative guidance in February 2023 with respect to Qualified Domestic Minimum Top-Up Taxes (QDMTTs) and blended controlled foreign corporation tax regimes (the 2023 February Administrative Guidance). Specifically, the 2023 July Administrative Guidance contains the following:

  1. Currency conversion rules for applying the GloBE Tax;
  2. Commentary on the application of tax credits, including refundable tax credits, with respect to adjusted covered taxes and other GloBE Tax components; 
  3. Clarification of substance-based income exclusion (SBIE) principles with respect to interjurisdictional assets and employees, stock-based compensation, and other guidance with respect to SBIE in the GloBE Tax computation;
  4. Additional principles for jurisdictions implementing QDMTTs that were not covered in the 2023 February Administrative Guidance, including joint venture rules, allocation of QDMTT to constituent entities, and other important guidance related to QDMTTs;
  5. Introduction of a new QDMTT safe harbor test that considers relief if three new standards are met: (a) QDMTT Accounting Standard, (b) Consistency Standard, and (c) Administration Standard;
  6. Introduction of a transitional undertaxed payments rule (UTPR) safe harbor test for ultimate parent entity jurisdictions (UPE Jurisdiction) during the transition period if the UPE Jurisdiction maintains a corporate income tax rate of at least 20%. The transition period referenced with respect to the Transitional UTPR Safe Harbor Test applies to fiscal years beginning on or before December 31, 2025 and ending before December 31, 2026.

In addition to this news, the OECD also has released an updated GloBE information return template and guidance with respect to the Subject To Tax Rule noted in the OECD outcome statement released last week. A more detailed and forthcoming FORsights™ article will be released soon on the 2023 July Administrative Guidance. 

For more information regarding how Forvis Mazars can assist you with your Pillar Two needs, please reach out to one of our professionals or use the Contact Us form below. 


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