Pillar 2: December 2022 update

The political momentum behind Pillar 2 remains strong. It very much looks like it will happen and what is now important is exactly when each measure comes in, the reporting requirements and readiness for those obligations.

The OECD continues to make progress towards revised guidance and commentary. We expect that to be released either before the festive break or not long after (according to discussions with national tax offices involved).

The additional guidance is expected to cover the proposed safe harbours, simplification measures, dispute resolution and information required to be included in the return.

The most interesting point for us was that the OECD is very seriously exploring introducing a temporary safe harbour based on Country-by-Country Reporting data adjusted for deferred tax and a limited number of additional adjustments. If, as expected, this is released shortly, it will change the approach firms will take towards compliance. It will not remove the need to get fully ready, but it will give the appropriate amount of time for everyone to get ready.

We understand that the OECD is also considering introducing permanent simplified gateway calculations which should reduce the compliance burden by making it easier to strip entities out of the main in-depth calculations, the discussions on this are less final than on the temporary measure.

In another positive step, the OECD is considering an approval mechanism for qualified domestic minimum tax calculations. If agreed, it will relieve jurisdictional IIR requirements and reporting for countries that meet the requirements. One to watch out for.

The EU process continues, over the last few days, the EU Member states have agreed to implement the Directive previously published and require member states to legislate domestically by 31 December 2023. Feel free to click through the links for the final approvals and text.

The UK, amongst other jurisdictions will look to adopt legislation in compliance with whatever OECD guidance is current at the time with an implementation window of IIR and QDMT for periods beginning on or after 1 January 2024, with UTPR one year after.