The Association of International Certified Professional Accountants has sent comments to the Organisation for Economic Co-operation and Development (OECD) Center for Tax Policy and Administration requesting clarification on the Transitional Country-by-Country Reporting (CbCR) Safe Harbour for non-implementing jurisdictions in 2024 under Global Anti-Base Erosion Model rules (GloBE), also known as Pillar Two.

In its letter, the association recommends the OECD clarify that a Multinational Enterprise group (MNE Group) is only required to meet the Transitional CbCR Safe Harbour for a jurisdiction once that jurisdiction is subject to one of the Pillar 2 charging mechanisms under the “once out, always out” approach.

The stated purpose of the Transitional CbCR Safe Harbour is to minimize compliance burdens for jurisdictions that are at a low risk of owing a potential top-up tax. Further, the rationale underlying the “once out, always out” rule is that an MNE Group that is required to perform the detailed GloBE calculations for a jurisdiction in a year is not disadvantaged by having to perform those calculations again in a later year. Requiring MNE Groups to meet the Safe Harbour for a jurisdiction that is not yet subject to a top-up tax undercuts both principles.

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The December 2022 administrative guidance issued by the OECD included a specific footnote clarifying when a jurisdiction comes within the scope of the Pillar 2 rules, specifically when it’s subject to one of the three Pillar 2 taxes – IIR (income inclusion rule), UTPR (undertaxed profits rule), or QDMTT (qualified domestic minimum top-up tax).

This footnote arguably provided some clarity for MNE Groups on this point, suggesting that the Safe Harbours were only relevant when a specific jurisdiction was subject to a top-up tax. However, the OECD subsequently released its “Consolidated Commentary” in April 2024 which omitted this crucial footnote, introducing further ambiguity for MNE Groups.

“Our recommendations are aimed at ensuring clarity and fairness in the application of the GloBE rules,” says Reema Patel, senior manager, AICPA Tax Policy & Advocacy. “This will ensure that MNE Groups do not face unintended compliance burdens or exclusion from transitional relief in subsequent years.”