OECD releases consultation document on tax certainty for the Pillar Two GloBE rules

  • The Organisation for Economic Co-operation and Development (OECD) has released a public consultation document on tax certainty for the Pillar Two Global Anti-Base Erosion (GloBE) rules.

  • Although the GloBE Rules include consistency and coordination mechanisms, differences in interpretation or application among jurisdictions could give rise to disputes.

  • Written comments from stakeholders are requested by 3 February 2023.

Executive summary

On 20 December 2022, the OECD released a consultation document on Tax Certainty for the GloBE Rules, in connection with the ongoing OECD/G20 project on Addressing the Tax Challenges Arising from the Digitalisation of the Economy (the BEPS 2.0 project). The document seeks input from stakeholders to inform the OECD/G20 Inclusive Framework’s ongoing work on tax certainty for the GloBE Rules.

As the GloBE rules are to be introduced by jurisdictions through domestic law, scenarios may arise where there are differences in interpretation or application of the GloBE Rules between two or more jurisdictions. The Inclusive Framework has begun work on possible mechanisms to ensure tax certainty under the GloBE Rules, which can be divided into two groups: (i) dispute prevention mechanisms and (ii) dispute resolution mechanisms.

With respect to dispute prevention mechanisms, the options discussed are:

  • Relying on the Model Rules, Commentary and Administrative Guidance to be agreed by the Inclusive Framework and released in the future, such as a multilateral review process with respect to the qualified status of the rules implemented by jurisdictions and the possibility of referring issues to the Inclusive Framework for clarification
  • Use of common risk assessment and coordinated compliance processes
  • Use of binding certainty mechanisms such as Advance Pricing Arrangements (APAs)

With respect to dispute resolution mechanisms, the options discussed are:

  • Developing a multilateral convention
  • Relying on competent authority agreements under the Convention on Mutual Administrative Assistance in Tax Matters (MAAC)
  • Relying on existing tax treaties
  • Creating a dispute resolution provision in domestic law

The Consultation Document includes specific questions seeking further input from stakeholders, including input on other options that could be explored to achieve tax certainty for the GloBE Rules. Written comments should be submitted by 3 February 2023.

Detailed discussion

The OECD released the GloBE Model Rules on 20 December 20211 and Commentary on 14 March 2022, as approved by the Inclusive Framework.2 These documents are intended to be used by countries to incorporate the Pillar Two global minimum tax rules into their domestic tax legislation.

At the time of the release of the Commentary, the OECD announced a public consultation requesting input in connection with the work to be undertaken by the Inclusive Framework on the GloBE Implementation Framework. A public meeting was held on 25 April 2022 to discuss the comments received on key implementation matters.3 On the question of rule coordination and tax certainty, the OECD Secretariat indicated that common views expressed by stakeholders included: (i) the need to develop a centralized process conducted by the Inclusive Framework to determine whether a rule is considered “qualified”; (ii) establish a coordinated approach for audits; (iii) develop an early certainty process; and (iv) introduce a binding dispute resolution mechanism founded in a Multilateral Convention.4

Consultation Document overview

The consultation document notes the need to anticipate where possible and resolve in a transparent, efficient, and fair manner the potential differences in interpretation and application of the GloBE Rules that could lead to uncertainty and additional costs for multinational enterprise (MNE) groups.

The consultation document is divided into three sections:

  • Dispute prevention mechanisms
  • Dispute resolution mechanisms
  • Further input and public consultation

The document notes that the views and proposals included in it are intended to provide stakeholders with substantive proposals for analysis and comment, but do not represent the consensus views of the Inclusive Framework member jurisdictions and do not prejudice the decisions to be made on the proposals.

Dispute prevention mechanisms

The consultation documents describe dispute prevention mechanisms as aimed at ensuring a common interpretation or application of rules among tax administrations and taxpayers at an early stage, with a view to avoiding disputes. It notes that preventing disputes at an early stage is expected to be more efficient and less costly. The document covers the following dispute prevention mechanisms.

Reliance on the Model Rules, Commentary and Administrative Guidance

The consultation document states that Pillar Two contemplates that jurisdictions including global minimum taxes into their domestic law will introduce GloBE Rules that are based on the Model Rules agreed by the Inclusive Framework, and that this generally will result in jurisdictions’ rules being aligned and synchronized for the most part. It further references the Commentary as establishing an agreed interpretation. However, it notes that there may still be questions on the interpretation of the rules that have not yet been considered or resolved when an issue arises for an MNE.

According to the consultation document, the recognition of “qualified” status for a jurisdiction’s Income Inclusion Rules, Undertaxed Payment Rules and Domestic Minimum Top-up Taxes will be done through a review process. To ensure the agreed rule order and the outcomes provided for under the Model Rules and the Commentary, a multilateral review process will be rigorous and cover all Chapters of the Model Rules, while accommodating constitutional and legislative requirements of the implementing jurisdictions. However, the document acknowledges that there is still the potential that two jurisdictions with “qualified” rules could take inconsistent approaches to an issue that is not addressed by the Commentary or Administrative Guidance.

When specific issues of interpretation or application of the GloBE Rules are not addressed in the Model Rules, Commentary or Administrative Guidance, the jurisdictions concerned could refer an issue to the Inclusive Framework for clarification which could be provided through the release of additional Administrative Guidance. This could help resolve the dispute and prevent similar disputes from arising in the future. However, the consultation document notes that as a policy body, the Inclusive Framework can only deal with broad questions of interpretation based on the Model Rules and Commentary, and there would be no ability for matters of taxation in specific cases to be brought to the Inclusive Framework. Moreover, procedures would need to be put in place to allow timely guidance to be provided on interpretation questions.

Common risk assessment and coordinated compliance

The consultation document indicates that a coordinated approach to assessing risks related to the GloBE Rules could result in more consistent outcomes and could give tax administrations the opportunity to share their views before reaching a conclusion. For example, a coordinated program similar to the OECD International Compliance Assurance Programme (ICAP) could be developed for GloBE purposes, through which implementing jurisdictions could give comfort to an MNE on its methodology for compiling the GloBE information and the accuracy of the GloBE computations it performed. The international and cross-border tax risks that can currently be covered by an ICAP risk assessment include transfer pricing risks, permanent establishment, and other risks as agreed by the MNE group and the tax administrations involved. The document suggests that consideration could be given to whether tax risks associated with the GloBE Rules may be covered under ICAP or a similar program developed for GloBE purposes.

Binding certainty mechanisms

The consultation document notes that the most common dispute prevention mechanism that provides binding certainty is an APA, which provides MNEs and jurisdictions with binding certainty regarding a specific situation within a defined period. However, it notes that jurisdictions typically rely on tax treaties as a legal basis for undertaking an APA. In addition, the arm’s-length principle is used as the basis for alignment in APA discussions. Such a common standard would need to be defined for an APA-like mechanism to be workable in the GloBE context. Moreover, in practice, all MNE Groups within the scope of the GloBE Rules may not be able to access such a mechanism.

Dispute resolution mechanisms

According to the consultation document, the basic elements of a dispute resolution mechanism can be derived from the Mutual Agreement Procedure (MAP) provision contained in Article 25 of the OECD Model Tax Convention and adapted for purposes of developing a dispute resolution mechanism that would aim to resolve issues arising from differences in the interpretation or application of the GloBE Rules.

A range of GloBE disputes could be covered by a dispute resolution mechanism. The consultation document indicates that as a starting point, the competent authorities would only need to resolve cases where the MNE raises a justified objection and considers that a taxation action taken by one jurisdiction results in uncoordinated outcomes for it based on differences in interpretation or application of the GloBE rules with other jurisdictions. The document further notes that the scope could be defined more narrowly to cover only those situations where the MNE Group is required to apply and pay Top-up Tax in multiple jurisdictions on the same underlying income or even more narrowly to require that the MNE demonstrates that the difference in interpretation or application of the GloBE Rules between jurisdictions resulted in double taxation for the MNE.

The consultation document indicates that competent authorities would need a common standard to refer to in resolving differences in the application of interpretation of the laws of different jurisdictions under a GloBE dispute resolution mechanism. It suggests that the Model Rules, Commentary and Agreed Administrative Guidance would provide such a standard for competent authorities to agree in situations where the domestic laws result in inconsistent outcomes.

The consultation document states that a dispute resolution mechanism for the GloBE Rules could be implemented through different legal instruments and discusses the following options.

Developing a multilateral convention (MLC)

A dispute resolution provision could be included in an MLC, allowing an MNE to file a request where an action has led to unintended tax outcomes under the GloBE Rules and competent authorities to accept such requests and resolve the issue on the basis of a common standard such as the Model Rules. An MLC also could include a provision that would allow competent authorities to give the common standard priority over domestic law so as to agree on a solution and implement it without regard to domestic time limits. However, the document recognizes that this option would entail efforts on the part of jurisdictions to agree on common concepts and wording. In addition, procedural aspects like ratification procedures related to international agreements should be considered.

Reliance on competent authority agreements under the MAAC

For jurisdictions that are parties to the MAAC, it could allow for competent authorities to exchange information and consult together on domestic tax disputes connected with the GloBE Rules. However, the consultation document indicates that the MAAC would not provide rights for the taxpayers to request a competent authority procedure and would not provide substantive legal basis for competent authorities to reach agreements or implement them, so it does not create a dispute resolution remedy for the GloBE Rules in itself. The document further notes that it may be possible to supplement a competent authority agreement under the MAAC with a domestic provision to create a dispute resolution mechanism.

Reliance on existing tax treaties

The consultation document suggests that one option could be to explore whether the MAP provisions included in bilateral tax treaties could be used for resolving GloBE disputes. The document notes the limitations of the current OECD Model Tax Convention MAP article in this respect, but suggests that Article 25(3), second sentence, of the OECD Model Tax Convention could provide a basis to discuss and resolve double taxation arising in cases involving the GloBE Rules. However, the document indicates that this option entails some limitations; there may be no tax treaty in place between the relevant jurisdictions, the mechanism is discretionary and cannot be accessed by MNE Groups, the provision only allows the resolution of cases of “double taxation” which may not cover all unintended consequences, and jurisdictions can take the view that this provision does not give authority to deviate from domestic law. Therefore, this instrument could be an option used in combination with a competent authority agreement and/or a domestic law provision.

Creating a dispute resolution provision in domestic law

The consultation document indicates that another new mechanism that could be considered is the introduction of a common dispute resolution provision alongside the GloBE Rules into the domestic law of each jurisdiction that could apply on a reciprocal basis (i.e., applicable only where all jurisdictions concerned have the same provision in domestic law). This type of provision could allow an MNE to file a request before a competent authority, authorize the competent authority to accept the request or discuss it with other competent authorities involved to find a common solution, authorize the competent authority to enter into discussions when a request is filed before another competent authority and allow the implementation of the agreed solution notwithstanding domestic time limits. The document further notes that jurisdictions may face legal or constitutional constraints with respect to this option and that such jurisdictions may consider restricting the availability of such a provision to issues of interpretation, where the GloBE Rules in multiple jurisdictions are worded identically but are interpreted differently.

Further input and public consultation

The consultation document includes questions seeking input from stakeholders on: (i) possible scenarios where jurisdictions can interpret or apply the GloBE rules differently; (ii) situations where different interpretations or applications of the GloBE Rules should be addressed by a dispute resolution mechanism, even if the MNE Group has not suffered double taxation; and (iii) any other options that could be explored to achieve tax certainty for the GloBE Rules.


The consultation document describes possible mechanisms to promote tax certainty through dispute prevention or dispute resolution. The public consultation provides a valuable opportunity for businesses to share practical perspectives on the situations where differences in interpretation or application of the GloBE Rules between two or more jurisdictions may arise. Business may want to comment on the potential efficacy of the proposed mechanisms to ensure tax certainty in the interpretation and implementation of the GloBE Rules, as well as suggest any additional options that should be considered by the Inclusive Framework.

For additional information with respect to this Alert, please contact the following:

Ernst & Young Belastingadviseurs LLP
  • Ronald van den Brekel
  • Marlies de Ruiter
Ernst & Young Limited (New Zealand)
  • Matt Andrew
Ernst & Young SA (Portugal)
  • Mariana Lemos
Ernst & Young LLP (United Kingdom)
  • Joel Cooper
  • Astrid Vroom
  • Emma Lobo
Ernst & Young LLP (United States)
  • Barbara M. Angus
  • Mike McDonald

For a full listing of contacts and email addresses, please click on the Tax News Update: Global Edition (GTNU) version of this Alert.