GloBE Model Rules

This is a navigational adaptation of an original work by the OECD. This adaptation are the sole responsibility of and should not be reported as representing the official views of the OECD or of its member countries.

The GloBE Rules, short for Global Anti-base erosion rules, are designed to ensure that large Multinational Enterprises (MNEs) pay a minimum level of tax (15%) on the income arising in each jurisdiction in which they operate. The Rules will generally apply to the large MNE groups and their so called constituent entities. More particularly, the Rules will apply to MNEs that have consolidated revenues of EUR 750 million in at least two out of the last four years. A single entity located in one jurisdiction which has a Permanent Establishment (PE) in another jurisdiction is also deemed to be a multinational enterprise when applying the test. However, the GloBE Rules specifically exclude investment funds, pension funds, governmental entities, international and non-profit organisations, which typically benefit from an exemption from tax under the laws of the jurisdiction where they are incorporated.

On October 2021, over 135 jurisdictions, members of the BEPS (Base Erosion and Profit Shifting) Inclusive Framework agreed to a plan to update key elements of the international tax system which are considered no longer appropriate in a globalised and digitalised economy. The Inclusive Framework (IF) members agreed on a two-pillar solution. Pillar 1 aims to ensure a better distribution of taxation of multinationals according to the countries in which they operate. Pillar 2, on the other hand, aims to control tax competition on corporate profits by introducing a global minimum tax of 15% via the GloBE Rules.

OECD has released multiple documents setting out the framework for how countries can implement and transpose the GloBE Rules into national law. The documents were drafted and approved by the BEPS Inclusive Framework, and consists of the Model Rules, Transitional and safe harbour rules, Commentaries, Examples and further guidance (Agreed Administrative Guidance) that already has been developed. Further guidance is still in development.

The overview below links to each article of the Model Rules which links to an elaborate description of the specific article. Changes as a result of further guidance are incorporated under each article with a reference to the changes made.

The GloBE Rules are a detailed set of rules that aims to ensure that large MNE’s are subject to a minimum effective taxation of 15 %.

Chapter 1 of the Model Rules defines the scope of the rules. Article 1.1 determines which MNE Groups and Group Entities are subject to the GloBE Rules. Article 1.2 to Article 1.4 set out a number of key definitions that are used to determine when an Entity or collection of Entities constitutes a Group and when that Group qualifies as an MNE Group. Article 1.5 specifies those Entities that are Excluded Entities and therefore outside the operative provisions of the GloBE Rules.

Under this chapter, the amount of Top-Up Tax charged to a Parent Entity or to the Constituent Entities located in a UTPR Jurisdiction is determined by attributing the Top-Up Tax of each Low-Taxed Constituent Entity determined under the rules in Chapter 5 to the Parent Entity under the IIR in accordance with Article 2.1 to Article 2.3 and then by allocating the residual Top-Up Tax, if any, to UTPR Jurisdictions in accordance with Article 2.4 to Article 2.6.

As part of the Agreed Administrative Guidance of 2 February 2023 and the Agreed Administrative Guidance of 17 July 2023 the standards for the Qualified Domestic Minimum Top-up Tax were published, which can countries can choose to implement without the implementation of the IIR and UTPR if the standards are met.

Under this chapter, the amount of GloBE Income or Loss of a Constituent Entity is determined by taking the Financial Accounting Net Income or Loss determined for the Constituent Entity for the Fiscal Year in accordance with Article 3.1 and then by adjusting this amount under Article 3.2 to Article 3.5 to arrive at that Entity’s GloBE Income or Loss.

Under this chapter the amount of a Constituent Entity’s Covered Taxes, as defined in Article 4.2 is determined by taking the current taxes determined for the Constituent Entity for the Fiscal Year in accordance with Article 4.1, adjusted to reflect certain timing differences under Article 4.4 and Article 4.5 by allocating Covered Taxes from one Constituent Entity to another in certain cases under Article 4.3 and by taking into account the effect of certain post-filing tax adjustments under Article 4.6.

Under this chapter the Top-up Tax of each Low-Taxed Constituent Entity is determined by aggregating each Constituent Entity’s GloBE Income or Loss, determined under Chapter 3, and Adjusted Covered Taxes, determined under Chapter 4, with those of other Constituent Entities located in the same jurisdiction to determine an Effective Tax Rate for the jurisdiction by identifying which jurisdiction is a Low-Tax Jurisdiction (i.e. has an Effective Tax Rate that is below the Minimum Rate) by computing a jurisdictional Top-Up Tax Percentage for each Low-Tax Jurisdiction by applying the Substance-based Income Exclusion to the Net GloBE Income in the Low-Tax Jurisdiction to determine the Excess Profits in that jurisdiction by multiplying the Top-up Tax percentage by such Excess Profit and reducing the result by the amount of any Qualified Domestic Minimum Top-up Tax to determine the Top-Up Tax for each Low-Tax Jurisdiction and by allocating such Top-up Taxes to the Constituent Entities in the Low-Tax Jurisdiction in proportion to their GloBE Income. The resulting Top-up Tax of each Low Tax Constituent Entity is then charged to a Parent Entity or to Constituent Entities located in a UTPR Jurisdiction under Chapter 2. This chapter also includes a de minimis exclusion for the Constituent Entities located in the same jurisdiction when their aggregated revenue and income does not exceed certain thresholds. Special rules are provided in Article 5.6 for calculating the ETR in respect of Minority-Owned Constituent Entities.

Chapter 6 contains rules relating to acquisitions, disposals and Joint Ventures. Article 6.1 supplements Article 1.1 by providing further rules for applying the consolidated revenue threshold in the case of merger and demerger transactions that took place in the prior four year period. Article 6.2 provides special rules for the application of the GloBE Rules that apply when a Constituent Entity enters or leaves an MNE Group during the Fiscal Year. Article 6.3 provides special rules for the treatment of transfers of assets and liabilities including as part of a reorganisation. Article 6.4 brings certain Joint Ventures within the scope of the GloBE Rules. Article 6.5 provides special rules for Multi-Parented MNE Groups.

Chapter 7 deals with the application of the GloBE Rules to certain tax neutrality and other distribution regimes.  Article 7.1 and Article 7.2 provide special rules in relation to Ultimate Parent Entities that are subject to a tax neutrality regime (such as a tax transparency regime or a Deductible Dividend Regime). Article 7.3 provides special rules in relation to certain tax regimes that subject an Entity to tax on its earnings when those earnings are distributed or deemed distributed. Article 7.4 to Article 7.6 provide special rules in relation to controlled Investment Entities that seek to preserve the tax neutrality of these Entities without giving rise to any leakage under the GloBE Rules.

Chapter 8 addresses certain administrative aspects of the GloBE Rules. Article 8.1 sets out an MNE Groups obligation to file a standardised information return in each jurisdiction that has introduced the GloBE Rules in order to provide information on the tax calculations made by the MNE under the GloBE Rules. Article 8.2 allows for the development of certain safe harbours. Article 8.3 facilitates co-ordination between tax administrations in the application of the GloBE Rules through the development Agreed Administrative Guidance.

Chapter 9 sets out certain Transitional Rules. Article 9.1 provides the transition rules that apply where an MNE Group enters within the scope of the GloBE Rules. Article 9.2 modifies the percentages to be applied in the calculation of the Substance-based Income Exclusion under Article 5.3 during a transitional period. Article 9.3 provides an exclusion from the UTPR for MNE Groups that are in the initial phase of their international activity. Article 9.4 provides transitional relief for filing obligations.

The Transitional CbCR Safe Harbour is designed as a short-term measure that would effectively exclude an MNE’s operations in certain lower-risk jurisdictions from the scope of GloBE in the initial years, thereby providing relief to MNEs in respect of their GloBE compliance obligations as they implement the rules. The safe harbour would allow an MNE to avoid undertaking detailed GloBE calculations in respect of a jurisdiction if it can demonstrate, based on its qualifying CbCR and financial accounting data, that in that jurisdiction it has revenue and income below the de minimis threshold (the de minimis test), an ETR that equals or exceeds an agreed rate (the ETR test), or no excess profits after excluding routine profits (the routine profits test). The Transitional CbCR Safe Harbour uses Revenue and Profit (Loss) before Income Tax from an MNE’s CbC Report and income tax expense from an MNE’s financial accounts (after eliminating taxes which are not Covered Taxes and Uncertain Tax Positions) to determine whether the MNE’s operations in a jurisdiction meet these tests. MNEs would still be required to perform a full Substance-based Income Exclusion (SBIE) calculation to meet the routine profits test.

The permanent safe harbour reduces the number of computations and adjustments an MNE is required to make under the GloBE Rules or allow the MNE to undertake alternative calculations to demonstrate that no GloBE tax liability arises with respect to a jurisdiction. These Simplified Calculations Safe Harbours would permit the MNE to rely on simplified income, revenue, and tax calculations in determining whether it meets the de minimis, routine profits or ETR test under the GloBE Rules.

The simplified calculations permitted under this safe harbour would be set out in Administrative Guidance as agreed and issued by the OECD/G20 Inclusive Framework on BEPS (Inclusive Framework) on an ongoing basis. Currently the simplified calculations are not in place. The Simplified Calculations Safe Harbour applies to the treatment of Non-Material Constituent Entities.

The Transitional Penalty Relief Regime which is a common understanding that requires a jurisdiction to give careful consideration as to the appropriateness of applying penalties or sanctions where an MNE has taken reasonable measures to ensure the correct application of the GloBE Rules. The proposal is intended to provide a “soft-landing” in the introduction of the GloBE Rules, recognizing that MNEs are more likely to make mistakes in the initial years of the application of the rules.

As part of the Agreed Administrative Guidance of 17 July 2023 a QDMTT Safe Harbour rule and a transitional UTPR Safe Harbour Rule were published.

The GloBE Information Return (GIR) contains the information a tax administration needs to perform an appropriate risk assessment and to evaluate the correctness of a Constituent Entity (CE)’s Top-up Tax liability. In particular, Article 8.1.4 of the GloBE Model Rules provides an outline of the information items to be included in the GIR. The rules also provide that this list shall be further specified, expanded or restricted in accordance with the GloBE Implementation Framework, including through the development of simplified reporting procedures.

Chapter 10 sets out defined terms used elsewhere in the GloBE Rules. Article 10.1 sets out general definitions that are used in the GloBE Rules. Article 10.2 sets out certain definitions in respect of Flow-through Entities. Article 10.3 sets out definitional rules for determining the location of an Entity for the purposes of applying the GloBE Rules.

Coming soon.

You can find the official OECD publications here.