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Amit Jalan By: Amit Jalan
March 9, 2023
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Global Minimum Tax (GMT) is the biggest change till date in Global Taxation.

With most Countries on board, the Inclusive Framework (IF) is moving aggressively towards implementation of Pillar 2 on 1st January 2024, at least in a phased manner. Very soon it will be applicable to all Multi-National Entities and hence the preparation for implementation has to start on a yesterday basis. GMT will impact the bottom line of the companies directly in terms of tax expense and it is expected that for entities which can implement this regime seamlessly, there can be a competitive advantage between 5% - 15% on the Cost side.

For tax professionals, both on the Consulting and Client side, it is an opportunity for tomorrow and those who enter now will certainly have a first mover’s advantage. Hence it is imperative that tax professionals keep themselves abreast of the dynamics of the new regime, which are expected to change fast as Governments and Tax Departments of the IF get more and more involved. Therefore, we are starting this weekly series on GMT which will have our Analysis of the changes and issues.


In October 2021 members of the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (Inclusive Framework) agreed a two-pillar solution to reform the international tax framework in response to the challenges of digitalisation of the economy. As part of the October Statement, Inclusive Framework members agreed to a co-ordinated system of Global anti-Base Erosion (GloBE) rules that are designed to ensure large multinational enterprises pay a minimum level of tax on the income arising in each jurisdiction where they operate.

In the October Statement, it was agreed that the Tax Challenges Arising from Digitalisation of the Economy – GloBE Model Rules (Pillar Two): Inclusive Framework on BEPS (the “GloBE Model Rules”) and the Tax Challenges Arising from the Digitalisation of the Economy – Commentary to the GloBE Model Rules (Pillar Two), First Edition: Inclusive Framework on BEPS (the “Commentary”) would have the status of a common approach.

Under this common approach, jurisdictions are not required to adopt the GloBE rules, but, if they choose to do so, they will implement and administer the rules in a way that is consistent with the agreed outcomes.

The GloBE Rules were approved and released by the Inclusive Framework on 20 December 2021. The GloBE Rules consist of an interlocking and coordinated system of rules which are designed to be implemented into the domestic law of each jurisdiction and operate together to ensure large MNE Groups are subject to a minimum effective tax rate of 15% on any excess profits arising in each jurisdiction where they operate.

The Commentary to the GloBE Model Rules was approved and released by the Inclusive Framework on 14 March 2022. The Commentary clarifies the interpretation and operation of the provisions in the GloBE Model Rules and includes some examples illustrating how the rules apply to specific fact patterns.

Although the Commentary is detailed and comprehensive, it does not provide guidance on every aspect of the GloBE Model Rules and, in certain cases, the Commentary specifically identifies issues that will require further consideration and development as part of the GloBE Implementation Framework.

Against this background, Inclusive Framework members have agreed, under Article 8.3 of the GloBE Rules, that jurisdictions implementing the GloBE Rules, shall, subject to any domestic law requirements, apply the GloBE Rules in accordance with any Agreed Administrative Guidance (which is defined as “guidance on the interpretation or administration of the GloBE Rules issued by the Inclusive Framework”).

Administrative Guidance on Pillar 2 released in February 2023:

On 2 February 2023, the OECD released Administrative Guidance on the Pillar Two GloBE Rules. This document contains administrative guidance that addresses issues under the GloBE Model Rules that the Inclusive Framework identified as most in need of immediate clarification. The document also notes that the nature and type of guidance that may be required may not be known until Inclusive Framework jurisdictions have begun the implementation process and that the need for further guidance on the application of the GloBE Rules may only emerge after the rules are in effect, which means that administrative guidance will be needed on an ongoing basis to address issues as they arise.

This Administrative Guidance covers a range of technical issues in the following areas:

  1. scope;
  2. income & taxes;
  3. application of GloBE Rules to insurance companies;
  4. transition; and
  5. Qualified Domestic Minimum Top-up Taxes. This Alert provides a detailed review of each area.

Administrative guidance on Transition Rule relating to Asset Transfers in Pre-GloBE period:

In this article we have covered the guidance issued in relation to the applicability of Article 9.1.3 of Chapter 9 (Transition Rules) of the GloBE Model Rules to transactions similar to asset sales from an accounting perspective.

Article 9.1.3. provides a limitation on asset transfers which take place after 30 November 2021 and before the commencement of a Transition Year (hereinafter referred to as the “Pre-GloBE Period”). Its policy intent is to limit MNE Groups’ ability to enter into tax-free or low-tax transactions during the Pre-GloBE Period that increase an asset’s carrying value. With such transactions, an MNE Group can use the higher carrying value to reduce its GloBE Income, for example through depreciation or amortization expenses, during GloBE years without any risk of Top-up Tax on the corresponding gain because the asset was transferred in the Pre-GloBE Period.

Therefore, under Article 9.1.3., if an asset (other than inventory) is transferred during the Pre-GloBE Period, and Entities involved in the transfer would have been Constituent Entities of the same MNE Group, the acquiring Entity must use the disposing Entity’s carrying value at the time of the disposition for purposes of determining the asset’s carrying value at the beginning of the Transition Year alongwith the DTAs and DTLs brought into GloBE determined on that basis.

The Administrative Guidance states that all transactions and corporate restructurings that are recorded in a similar manner as an asset transfer (i.e., where the MNE Group creates or increases the carrying value of an asset), regardless of their form and whether they take place within an Entity or among Entities, should be viewed as a transfer of asset for purposes of Article 9.1.3.

The Administrative Guidance provides that:

  • the term “transfer of assets” includes any transfer in which the acquiring Entity creates or increases the carrying value of an asset in its financial accounts and the disposing Entity recognizes the corresponding amount of income in the pre-GloBE Period.
  • the rule also applies where the MNE Group records intra-group transactions at cost and a DTA based on the difference between book and tax basis under the domestic law is created, and to a transfer or deemed transfer within the same Entity.
  • It applies to a transaction where the asset arises for accounting purposes during the Pre-GloBE Period but the legal transfer occurs in or after the Transition Year.

Justification for the guidance provision:

The integrity of the GloBE Rules would be undermined if MNE Groups were allowed to engage in

asset transactions during the Pre-GloBE Period where the income from the transaction is taxed below the minimum rate without the risk of Top-up Tax and the corresponding increase in the carrying value, shields future income from potential Top-up Tax. This can also happen in the case of transfers or deemed transfers that happen within the same Entity, where the Entity is taxed at a low rate during the Pre-GloBE Period, and the same Constituent Entity can use the corresponding carrying value increase in computing its GloBE Income after the Transition Year.

The Administrative Guidance provides a series of examples of situations where Article 9.1.3 should apply:

Transaction type

Element of transaction which can be low-tax or tax free

A sale of an asset

Gain from sale of asset

A capital lease, which is accounted for in the same or similar manner as a purchase of an asset

Gain from sale of asset

A license that is effectively treated as a sale for accounting purposes

Gain from sale of asset

A transfer of assets through a sale of a Controlling Interest

Gain from sale of asset

A prepayment of royalty or rents, where the licensor/lessor records the prepayment as income and the licensee/lessee capitalizes and amortizes the asset in its financial accounts

Lump sum income on prepaid royalty or Rent

A total return swap where the underlying asset is transferred to the financial accounts of the Entity that acquired the rights to income and capital gains generated by an underlying asset

Gain from transfer of underlying asset

A migration of an Entity/Entities where an MNE Group receives a step-up in the tax basis or carrying value (e.g., based on fair value of assets) of the relocated assets

Exit from original jurisdiction

A change to fair value accounting where the Entity records the relevant gains or losses from fair value changes of the underlying asset and corresponding adjustments to the carrying value of the asset

Adjustment to opening equity upon accounting principle change and annual gains from fair value accounting

We hope this series adds Value in your professional Sphere.


By: Amit Jalan - March 9, 2023



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