The DFCG is a leading French non-profit organization founded in 1964, representing more than 3 000 chief finance officers and finance professionals from 1 800 French large, medium and small-sized companies.
As a preliminary remark
The DFCG welcomes the opportunity to provide comments on the two Public Consultation Documents released by the OECD Secrétariat on December, 20th 2022 in relation with the implementation of GloBE rules by the Inclusive Framework (“I.F.”):
– The consultation document on the GloBE Information Return (“GIR”)
– The consultation document on Tax Certainty
The DFCG understands and supports the policy intent of the Pillar 2 project. Its members are equally convinced that a key success factor for its implementation is a balanced and effective compliance, as well as a strong tax certainty process in order to avoid implementation mismatches and disputes. This is in the interest of both MNE and tax authorities, so that resources and investments are focused on situations actually targeted by the policy intent.
With respect to the balanced compliance, the GIR consultation document raises very significant concerns in relation to the difficulties and workload resulting from a reporting on an entity-by-entity basis. Instead and as detailed below, the DFCG suggests excluding the jurisdictions where there is obviously no top-up tax to be claimed (i.e. the countries where the GloBE ETR is at least at 15 % or no excess profit exists after the substance test) from the scope of the information requirements on an entity-by-entity basis. The DFCG is also very concerned about the business sensitivity of the data collected and the potential use that some countries could make of it. In addition, although the proposed safe harbor rules give a clear comfort in terms of simplification, we consider they should become permanent instead of applying for a limited period of time. Finally, the DFCG recommends a centralized approach whereby the country of the Ultimate Parent Entity would be the lead tax authority.
With respect to Tax Certainty, whilst many interesting proposals are set out in the document, it appears that much more engagement and development is still needed to arrive at effective measures, especially when a “Qualified Domestic Minimum Top up Tax” is implemented by some countries.
I – GIR consultation document
1°) Format – level of disclosures required from MNE
DFCG members support a common format of the GIR across I.F. countries, in order to ensure a consistent filing and information request approach.
However, some of the proposals set out regarding the level of disclosures which would be required are very concerning.
In particular, the DFCG strongly believes that the requirement to detail the GloBE computations on a Constituent Entity (“CE”) by Constituent Entity basis in each country of establishment is disproportionate.
Many MNE have hundreds or thousands of entities, and requesting that level of disclosure is neither reasonable nor useful.
Indeed, many groups do not currently have consolidation reporting systems that allow an entity-by-entity view at the UPE level. This is because the information used to publish financial statements is already aggregated at lower levels, based on business unit or regional packages. It is unlikely that this will change after implementation of GloBE, since the ETR is calculated at country level and not an on a CE-by-CE basis. The need for a CE by CE breakdown only arises when there is a top up tax liability, which is expected to be the case only in a very limited number of countries for most MNE.
We therefore urge the Inclusive Framework and the OECD to limit the information to be provided at a country level for jurisdictions where there is potentially a top up tax at stake. In practical terms, we strongly suggest that, for jurisdictions where the GloBE ETR is at least 15% or where there is no excess profit after the Substance-Based Income Exclusion (SBIE), MNE should only provide country level computation of the GloBE income, covered taxes, and SBIE, without detailing such computation on a CE-by-CE basis.
At the very minimum, where a tax consolidated group exists in a country, it would not make any sense from an economic perspective to have a CE-by-CE disclosure. That group should be treated as one single CE for the purpose of the GIR, if the MNE has elected to disregard transactions within the tax group for GloBE income computation purposes per article 3.2.8 of the Model Rules.
For countries where there is a potential top up tax liability, MNE would be prepared to break down the top up tax on a CE by CE basis in the return, as is foreseen by the Model Rules.
2°) Business Data confidentiality
Protecting sensitive business data is a key concern for DFCG members. It is also important that shared data is not used for other purposes than reviewing GloBE calculations. Many of the CE-by-CE information can be highly sensitive from that standpoint.
We understand that no decision has been made yet as to the level of information which would be shared among the countries where an MNE has Constituent Entities.
The DFCG strongly recommends that only general information is shared with countries which are not in a position to collect top up tax. In no circumstance should a country be provided with detailed information regarding other countries if it is not entitled to collect a top up tax for the latter.
3°) Need for permanent Jurisdiction Safe Harbors
The DFCG understands that, where a transitional jurisdiction Safe Harbour applies for a jurisdiction, there would be no need to provide a detailed GloBE computation in the GIR for that country. We welcome that simplification approach.
However, no effective permanent jurisdiction SH currently exists after that period. Yet they would allow MNE and tax authorities to focus on countries where there is an actual top up tax at stake, which are in a very limited number for many MNE. This is key to allow the P2 project to stay targeted and in line with policy intent, consistent with the October 2021 statement of the Inclusive Framework on a two-pillar solution.
The DFCG believes that CBCR data could be used as a proxy for the GloBE Income/Loss for SH purposes on a permanent basis after the transition period, provided that there are clear guidelines as to its content. The CBCR pre tax profit is generally based on consolidated statements, and is a highly reliable and audited number. Moreover, MNE believe that a limited number of adjustments could be applied to deferred taxes in order to provide assurance that the simplified ETR / SBIE calculation does not eliminate any top up tax.
We therefore recommend that the OECD and the IF continue to engage on the design of CBCR-based permanent jurisdictional Safe Harbours, so that the Pillar 2 administration remains targeted and balanced even after the end of the transition period.
4°) Filing and post-filing process of the GIR
The DFCG strongly recommends that, where the UPE has been designated as the filing entity, the country of the UPE should be the lead tax authority if it has implemented Pillar 2. This would mean in practice that:
A centralized and streamlined approach will hopefully also enable MNE to preserve business data confidentiality, and avoid being inundated with multiple information requests from many countries and never know when the top up calculation is final.
II – Tax certainty document
The DFCG believes that an effective certainty process is required for P2 implementation, not only in order to avoid double taxation and disputes, but also to avoid the extreme complexity of having to deal with multiple inconsistent regulations all over the world.
With this respect, we note that the opening remarks of the document stress upon the fact that there is currently no consensus within the Inclusive Framework on any of the proposals described. This is concerning, given the importance of tax certainty as part of a balanced and targeted Pillar 2 implementation and the fact that P2 will be implemented as early as 2024.
With respect to ex ante tax certainty, the DFCG supports clear guidelines and processes to make sure that the rules are implemented in a consistent manner everywhere.
In particular, the notion of “Qualified Domestic Minimum Top up Tax” (“QDMTT”) seems critical, as most of the countries implementing P2 have announced that they will also introduce a QDMTT. The Administrative guidance on QDMTT should be as detailed and specific as possible on what constitutes a QDMTT, which should closely mirror the mechanism of the GloBE rules and embed any GloBE simplification and Safe Harbour on a mandatory basis. The DFCG believes that this is the only way Pillar 2 can be implemented consistently and with limited administrative complexity and risks of disputes.
An Advance Certainty process would also be a very useful tool. Both MNE and tax authorities could agree in advance on key features of the GloBE computation and potential simplifications. That process could take place unilaterally with the Lead Tax Authority if it has implemented P2 (see above) and other top up tax collecting countries if there are P.O.P.E.
As far as dispute resolution is concerned, the DFCG supports a multilateral instrument in order to ensure binding dispute resolution processes among Inclusive Framework countries. If that instrument is not available in the short term, I.F. countries should develop reciprocated domestic provisions allowing such mechanism in practice.
Paris, February 1st 2023