Brief overview

In Disclose issue 33 we highlighted the main components of Pillar 2 of the BEPS 2.0 project. Pillar 2 aims to introduce a global minimum tax rate of 15% for enterprises with an annual turnover of over EUR 750 million. According to estimates by the Swiss federal government, Pillar 2 should affect around 200 companies which have their group headquarters in Switzerland and around 2,000 to 3,000 subsidiaries of foreign groups based in Switzerland. The global minimum tax framework is also known as the Global Anti-Base Erosion (‘GloBE’) rules, and was developed by the OECD. The GloBE rules are evolving and require interpretation, which is why the OECD published further interpretation aids within a year of their publication, which are discussed below. It is now up to the individual countries – including Switzerland – to transpose the GloBE rules into national law, and it now appears that many countries will do so on 1 January 2024.

The challenge for companies is to analyse the GloBE rules and, in particular, to review the company’s internal data situation thoroughly so as to ensure that the necessary data are available in the required form and in good time in order to be prepared for the global (and presumably also partly local) tax returns that will be required in the future. In many cases, this is a Herculean task that can only be accomplished through close cooperation between the finance, tax and IT functions.

Situation regarding work done by the OECD

On 20 December 2022, exactly a year after the publication of the GloBE Model Rules, the OECD published its long-awaited additional guidelines on the future design of Pillar 2. The implementation package contains the following three elements:

• Guidance on Safe Harbours and Penalty Relief
• a consultation document on the global tax return (‘GloBE Information Return’)
• a consultation paper on the possible dispute settlement mechanism which might be necessary in individual cases between individual countries within the context of the implementation of Pillar 2 at national level

The Guidance on Safe Harbours and Penalty Relief draws on evidence from previous public consultations. We recommend that companies pay particular attention to this matter, as the (temporary or permanent) safe harbours may result in practical simplifications or relief in the way that Pillar 2 rules, which are otherwise very complex, are handled.

On the other hand, the OECD asked the general public to comment on the issues of the global tax return and the dispute settlement mechanism as mentioned above.

In addition to the above implementation package, on 2 February 2023 the OECD published a further explanatory document, the Agreed Administrative Guidance, which sheds more light on a large number of detailed technical questions. These explanations will ultimately be included in the new edition of the commentary on the GloBE Model Rules, which is expected before the end of 2023.

Situation regarding implementation in the individual countries

The Swiss roadmap for the implementation of Pillar 2 still expects it to be implemented as of 1 January 2024. In 2022, the corresponding constitutional basis as well as the first part of the necessary implementing ordinance were issued or sent for consultation and discussed in the Federal Parliament. This year, the second part of the necessary implementing ordinance is expected. In addition, 2023 will be an important year due to the national referendum on the constitutional amendment (June 2023) and because the cantons will have to consider whether, or to what extent, they will use the expected additional revenue from the supplementary tax for measures to make them more attractive as a place to do business.

The EU also reached a milestone in December 2022 when the ambassadors of the EU member states agreed on the adoption of a directive to introduce global minimum taxation in the EU. The directive has been formally adopted by the Council, and is set to be implemented within the EU by the end of 2023.

The EU was seen by several countries as the most important ‘pioneer’ for their own implementation of Pillar 2, which is why we now assume a domino effect will occur with other countries (e.g. Canada, Colombia, Liechtenstein, Norway, the UK, Japan). Most countries will implement the relevant legislation in sync with Switzerland or the EU, although there will also be exceptions (e.g. Hong Kong and Singapore are not planning to implement Pillar 2 until 2025).

The USA, which passed the Inflation Reduction Act last year, remains a big question mark. This Act also provides for a global minimum tax of 15%. However, the corresponding criteria and the scope of application do not coincide with those of Pillar 2. In addition, the US minimum tax already applies for tax periods beginning from 1 January 2023. This results in a number of additional complexities that need to be considered for both US corporations and non-US corporations with US subsidiaries.

Statements by the IASB and FASB

In November 2022, the International Accounting Standards Board (IASB) provisionally decided to propose amendments to the IAS 12 standard. The proposed amendments would introduce a temporary exemption from accounting for deferred tax arising from the implementation of Pillar 2. This exemption is set to last until the exemption is either definitively decided upon or abolished.

In addition, the IASB has stated, also in terms of a provisional decision. that IAS 12 requires specific disclosures in the notes to the financial statements in certain circumstances in periods prior to the effective date of Pillar 2.

The IASB published an associated exposure draft in January 2023, which can be commented on within a shortened deadline of 60 days. It is expected that the corresponding rules could be adopted in the second quarter of 2023.

At the beginning of February 2023, the FASB for its part stated that the global minimum tax resulting from Pillar 2 is an ‘alternative minimum tax’, which should consequently have no influence on the deferred tax assets or liabilities of a company. In contrast to the IASB’s opinion, this exclusion of the Pillar 2 effect seems to be a permanent – and not just a temporary – exception, and no specific further explanations are required in the notes to the financial statements.