Following the publication of the GloBE model rules there were concerns about the complexity of some of the adjustments to income and taxes required under rules, which could place an unnecessarily large compliance burden on some multinationals. There could be problems particularly in the first years after the rules go into effect as MNEs and tax administrations begin to operate the rules in practice.
Transitional safe harbour
As a result of the concerns the Inclusive Framework has drafted a transitional safe harbour and a regulatory framework for developing a permanent safe harbour. The transitional CbCR safe harbour would be a short-term measure to exclude from the scope of the computations an MNE’s operations in certain lower-risk jurisdictions in the first years the rules operate.
The safe harbour would exempt an MNE from detailed GloBE calculations for a jurisdiction if it could show, on the basis of CbC reporting and financial accounting data, that it has revenue and income below the de minimis threshold in the jurisdiction (the de minimis test) and an effective tax rate that equals or exceeds an agreed rate (the ETR test); or has no excess profits after excluding routine profits (the routine profits test). The transitional safe harbour would use the revenue and profit figures from the CbC report and the income tax expense from the financial accounts, after adjusting for taxes that are not covered taxes and for uncertain tax positions.
An MNE would still need to perform a substance-based income exclusion (SBIE) calculation to meet the routine profits test.
Permanent safe harbour
The permanent safe harbour would reduce the number of computations and adjustments or allow the MNE to undertake alternative calculations to show that no GloBE tax liability arises in relation to a jurisdiction. The simplified calculations safe harbours would allow the MNE to use simplified income, revenue, and tax calculations to see if it meets the de minimis, routine profits or ETR test under the rules. The simplified calculations permitted would be set out in administrative guidance.
Transitional Penalty Regime
The transitional penalty relief regime would require a jurisdiction to carefully consider the appropriateness of penalties if an MNE has taken reasonable measures to correctly apply the GloBE rules. Multinationals would therefore be less likely to be penalised for mistakes made in the initial years of the application of the rules.
Objection by implementing jurisdiction
Where the tax administration of an implementing jurisdiction considers that there are circumstances that materially affect the eligibility of the constituent entities to apply the safe harbour, it would be able to challenge their eligibility.
QDMTT Safe Harbour
Work has continued on a Qualified Domestic Minimum Top-up Tax (QDMTT) safe harbour that would eliminate the need for an MNE to perform a further GloBE calculation in addition to the QDMTT calculation required under law of the local jurisdiction. When finalised this may be included in the administrative guidance on the QDMTT.
