OECD releases Pillar Two Administrative Guidance - Tax and Legal blog


On 2 February 2023, the OECD/G20 Inclusive Framework on BEPS (inclusive framework) released a package of technical and administrative guidance (“administrative guidance”) related to the 15% global minimum tax on multinational corporations known as Pillar Two (or the global anti-base erosion (“GloBE”) rules). The guidance was agreed by consensus of all 142 countries and jurisdictions in the OECD/G20 inclusive framework and forms part of the “common approach.” Under the common approach, countries are not required to adopt the GloBE rules but, if they choose to do so, they agree to implement and administer the rules in a way that is consistent with the outcomes provided for under the Pillar Two model rules and any subsequent guidance agreed by the inclusive framework.

The publication of the administrative guidance follows the release of the Pillar Two model rules in December 2021 and commentary in March 2022, as well as rules for safe harbors and penalty relief released in December 2022. The newly released administrative guidance will be incorporated into a revised version of the commentary that is expected to be released later in 2023.

The Administrative Guidance covers over two dozen topics, addressing those issues that inclusive framework members identified as most pressing, treated in five chapters, among others:


The GloBE Rules apply to MNE groups that consolidate on the Parent Entity’s financial statements. The definition of “Consolidated Financial Statements” in the Model Rules includes financial statements that an entity would prepare if it were required to prepare such statements.

The Administrative Guidance clarifies the scope of the “deemed consolidation” test provided in the GloBE Rules. Specifically, the guidance provides that the deemed consolidation rule applies when an entity does not prepare financial statements under an Authorized Financial Accounting Standard because there is no statute or regulation that requires it to prepare consolidated financial statements in accordance with an authorized accounting standard (e.g., a privately held corporation). The deemed consolidation rule applies to treat a group as a consolidated group if:

  • The parent entity was required to prepare financial statements under law or regulations, and
  • The applicable accounting standard required consolidation.

Notably, the rule does not deem a group to consolidate where entities are not required to consolidate under the authorized accounting standard.

The guidance specifically mentions entities that are treated as investment entities under the authorized accounting standard and that record their investments at fair value as an instance where the deemed consolidation rule will not apply, because the authorized accounting standard does not require consolidation of the investments on a line-by-line basis in this situation.

The additions to the Commentaries on the scope of the GloBE Rules also address ancillary technical issues such as currency conversion and when certain entities may be treated as excluded entities.

Income and taxes

The Administrative Guidance addresses several issues relating to GloBE income or loss and covered taxes:

  • The guidance addresses an issue under US GAAP for sales of assets between group members. Regardless of how the group accounts for such transfers, for GloBE purposes the selling entity determines its gain or loss on an arm’s length basis. The administrative guidance, however, does not expressly address the carrying value of the transferred asset for GloBE purposes in the hands of the acquiring entity. Rather, the administrative guidance notes that further guidance may address the potential for double taxation.
  • A new “substitute loss carry-forward DTA [deferred tax asset]” addresses foreign tax credit carryforwards from years where credits cannot be utilized because of a domestic loss that offsets controlled foreign corporation (CFC) income.
  • A new election adds back “qualified flow-through tax benefits of qualified ownership interests,” which is intended to address tax benefits that are derived from certain equity structures.
  • Clarification on the treatment of Blended CFC Regimes, like GILTI:
       - The guidance confirms GILTI is a CFC tax that is allocated to one
          or more CFC jurisdictions.
       - The guidance provides an allocation formula for GILTI and other “blended
         CFC tax regimes” whereby the CFC tax is allocated to low-tax entities based
         on the difference between that jurisdiction’s effective tax rate (ETR) under
         the GloBE rules and the CFC tax rate (i.e., 13.125% for GILTI), and
         the amount of income as determined under the CFC regime
         (i.e., tested income in the case of GILTI) earned in that entity.
         This rule applies through 2025 (for calendar-year groups), 
         at which point the inclusive framework will assess whether
         to allow a special allocation method for blended CFC tax regimes.
       - GILTI and other CFC taxes, including subpart F, are not taken into account
         under a QDMTT (see below).

Transition rules

The guidance resolves the ambiguity around deferred tax assets (DTAs) associated with credit carryforwards that arises because of an apparent tension between Articles 9.1.1 and 4.4.1(e). Article 9.1.1 states that generally, DTAs that exist before the GloBE Rules come into effect are taken into account once the rules apply (subject to a 15% limitation). Article 4.4.1(e), however, provides that any DTA associated with tax credit carryforwards is excluded from adjusted covered taxes. The guidance states that all DTAs (disregarding the impact of valuation allowances and accounting recognition adjustments) are taken into account under Article 9.1.1 and thus can be utilized to increase covered taxes in post-effective date GloBE years (including those DTAs relating to credits), other than any DTAs subject to Articles 9.1.2 and 9.1.3. A special formula is provided for applying the 15% limitation to DTAs arising from credit carryforwards.

The guidance also clarifies various aspects of the Article 9.1.3 transition rule. Under Article 9.1.3, if a constituent entity transfers assets (other than inventory) to another constituent entity of the same MNE group after November 30, 2021, and before the commencement of a transition year (the pre-GloBE period), the transferee will determine its basis (GloBE carrying value) based on the carrying value of the transferor and determine any DTAs arising from that transfer on that basis. The policy intention of Article 9.1.3 is to disallow either a carrying-value step-up or the creation of a DTA, either of which would permit a taxpayer to receive a tax benefit in the post-GloBE period with respect to a transaction in the pre-GloBE period that was taxed below the minimum rate.

  • For example, where the income on the transfer in the pre-GloBE period is not taxed, under Article 9.1.3 the transferee entity may neither:
            - Take a stepped-up carrying value in the transferred asset for GloBE
               purposes that otherwise would have permitted the acquiring entity
               to reduce post-GloBE income through increased depreciation
               or amortization, nor
            - Create a DTA in the acquiring entity that could then be carried
               into the post-effective date period and achieve the same effect
               by creating tax expense in post-GloBE years, as the DTA
               would be reversed.
  • However, to the extent tax was paid on the transfer, either by the selling entity, a local consolidated group, or by another constituent entity under the principles of Article 4.3 (e.g., CFC taxes and taxes on PE income), the buyer may establish a DTA following the sale in such cases based on the amount of tax paid, subject to the 15% limitation under Article 9.1.1.
  • The term “transfer” is interpreted broadly to include any transaction that has similar effect to a transfer, including fully paid-up leases/licenses, sales of controlling interests, prepayments of royalties, total return swaps, and migrations between jurisdictions that result in basis step-ups.

Qualified Domestic Minimum Top-up Taxes

A QDMTT need not follow the detailed rules applicable to the IIR and the UTPR described in the model rules and related commentary, but a QDMTT must be implemented and administered in a way that is consistent with the outcomes provided for under the GloBE rules. The Administrative Guidance contains further guidance on QDMTTs to assist tax administrations in determining whether a minimum tax will be respected as a QDMTT. Specifically, with respect to each chapter of the Model Rules, the Administrative Guidance identifies the degree to which a QDMTT must conform to or can vary from the requirements of such chapter.

For example, whereas only companies with more than €750 million of turnover are in scope under the Model Rules, a QDMTT can apply to companies with less revenue, but the threshold cannot be set above €750 million.

Several rules with respect to QDMTTs are worthy of note:

  • Article 4.3.2(c) of the Model Rules provides that covered taxes included in the financial accounts of a constituent entity’s direct or indirect constituent entity-owners under a CFC tax regime are allocated to the constituent entity that earned the income giving rise to the CFC inclusion. This rule is turned off for purposes of the QDMTT, with the effect that the QDMTT jurisdiction has the primary right to tax income under the QDMTT arising in its jurisdiction.
  • A QDMTT should contain safe harbors that align with the safe harbors agreed under the GloBE Rules, including the transitional CbC safe harbors contained in the December 2022 guidance.
  • A QDMTT need not contain a “substance-based income exclusion” (SBIE) based on payroll and assets in a jurisdiction, but if it does include one it cannot be more generous (but can be less generous) than the SBIE in the Model Rules.

Under the Model Rules, a QDMTT results in a credit against either an IIR or a UTPR. In certain circumstances a credit resulting from the application of the QDMTT may eliminate any further top-up tax under an IIR or a UTPR. That may not always be the case, due in part, for example, to the fact that a QDMTT may be determined by reference to a local financial accounting standard, as opposed to the financial accounting standard of the ultimate parent entity.

The Administrative Guidance explains that the inclusive framework will undertake further work on developing a QDMTT safe harbor, the effect of which would be to eliminate any residual IIR or UTPR when the QDMTT safe harbor applies.

Looking ahead

The published administrative guidance provides more clarity on some of the critical elements of the Pillar Two rules. Many topics remain that are open to interpretation, and we can expect that over the coming months and years the OECD will continue to provide further clarification. The guidance released on the QDMTT stipulates that there will be deviations in the local application of the rules and it will be critical to closely follow how countries will going forward implement the rules. This will add another layer of complexity on managing the Pillar Two compliance going forward. The implementation of the Pillar Two rules will be a challenging journey for taxpayers and tax authorities a like. It will be important for the OECD to continue to work on simplifications and a dispute resolution mechanism.

With content provided by Deloitte United States.

If you would like to discuss more on this topic, please do reach out to our key contacts below.

Key contacts

Blog_Daniel stutzmann110x110

Daniel Stutzmann - Partner, Global Minimum Tax  

Daniel is a Tax Partner with 17 years of experience as an international corporate tax specialist. Daniel has extensive experience in the area of cross-border structuring (like establishing tax efficient IP- and financing structures) as well as business reorganizations including large supply chain transformation projects. He also has broad knowledge in tax accounting and tax reporting both from an advisory and audit side. Daniel is a specialist in the OECD Pillar 2 legislation and its impact and leads the Deloitte Switzerland Pillar 2 team.

As a Swiss tax expert he has managed the Swiss tax compliance of hundreds of companies in Switzerland from various industries. He is well acquainted with the Swiss tax authorities and has successfully led various tax audit and tax ruling negotiations with the Swiss tax authorities.



Ilan Rom - Partner, Financial Services Tax

Ilan Rom has over 20 years experience in the Swiss insurance and re-insurance industries and is a tax expert with deep knowledge in the area of Insurance/Reinsurance, Treasury, Asset Management, Corporate Restructuring, M&A, VAT, Transfer Pricing and Tax Reporting.


Manuel Angehrn110x110

Manuel Angehrn - Senior Manager, Global Minimum Tax  

Manuel is a Senior Manager with over 10 years of experience in International Tax. He is a Deloitte Switzerland’s Global Minimum Tax subject matter expert. He follows domestic and global tax developments and assesses the impact to Swiss multinationals.


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Gautam Agarwal - Senior Manager, Accounting Advisory Services

Gautam is a Senior Manager in our Corporate Assurance Services department and brings over 10 years of experience in accounting advisory. He is Deloitte Switzerland’s Pillar II accounting technical knowledge leader. He is responsible for the accounting impact assessment and governance.


Peluso Ryan-109-110-v3

Ryan Peluso - Assistant Manager, Global Minimum Tax

Ryan is an Assistant Manager with over 7 years of experience in International Tax. He supports in modelling the impact of Pillar II as well as developing and executing processes for its implementation. He is specialised in helping clients access, visualise and analyse their data for international tax reporting, compliance and planning processes.



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