OECD releases key documents under Pillar One and Pillar Two

Dominik Birrer
Partner Tax, PwC Switzerland

Katya Federspiel Alig
Managing Director Tax, PwC Switzerland

On 17 July 2023, the OECD/G20 Inclusive Framework on BEPS (IF) issued four important documents related to Pillar One and Pillar Two. The key documents include a public consultation document on Amount B of Pillar One and on Pillar Two a second set of Administrative Guidance on the GloBE Model Rules, an updated version of the GloBE Information Return as well as a report with model treaty text to give effect to the Subject-to-Tax Rule (STTR), together with an accompanying Commentary explaining the purpose and operation of the STTR.

Pillar One – public consultation document on Amount B

Amount B is meant to apply to a large range of industries buying and selling tangible goods, including consumer goods, alcohol and tobacco, construction, vehicles, IT hardware, software and components, textiles, machinery and tools and pharmaceuticals.

The updated public consultation document on Amount B of Pillar One attempts to simplify the transfer pricing of certain baseline wholesale marketing and distribution activities by providing agreed returns, as laid out in a ‘pricing matrix’, to the source country on such activities. The OECD also published a short overview, titled ‘Amount B in a Nutshell’, to assist stakeholders in understanding Amount B. Comments are due 1 September 2023.

The consultation document outlines the design elements of Amount B and highlights the following areas that require further attention and development:

  • Ensuring an appropriate balance between quantitative and qualitative approaches in identifying baseline distribution activities.
  • Determining the appropriateness of the pricing framework and its application.
  • Identifying the criteria to apply Amount B utilising local databases in certain jurisdictions.

The IF plans to approve a final report on Amount B and incorporate key content into the OECD Transfer Pricing Guidelines (TPG) by January 2024. It is important to note that the proposals outlined in the consultation document represent the work of the OECD Secretariat, since the IF has not yet reached consensus on them. Their basic design may be subject to change, unrelated to the consultation process.

A more in-depth analysis and observations can be found in PwC’s Tax Policy Alert ‘OECD Releases Pillar One Amount B’.

Pillar Two – additional Administrative Guidance and updated GloBE Information Return (GIR)

Following the first set of Administrative Guidance released in February 2023, the second set of additional Administrative Guidance covers the following issues.

Transitional UTPR Safe Harbour

Under the Transitional UTPR Safe Harbour, the UTPR Top-up Tax amount for the Ultimate Parent Entity (UPE) jurisdiction shall be deemed to be zero for fiscal years that begin on or before 31 December 2025 and end before 31 December 2026 provided the UPE jurisdiction has a nominal corporate income tax rate of at least 20%. The absence of a QDMTT in the US, at least in the short term, makes this transitional safe harbour particularly pertinent for US-based MNEs.

Permanent QDMTT Safe Harbour

Provided that a jurisdiction’s QDMTT meets in addition to the existing QDMTT rules and guidance the following three standards: (1) the QDMTT Accounting Standard, (2) the Consistency Standard and (3) the Administration Standard – the permanent QDMTT Safe Harbour switches off the application of the GloBE Rules in other jurisdictions by setting the Top-up Tax to zero for the jurisdiction with the QDMTT. Based on a peer review process (still to be developed) it will be determined whether a jurisdiction’s QDMTT qualifies for the safe harbour. As Switzerland plans to introduce a QDMTT in line with the GloBE Rules, this is a good starting point for the Swiss QDMTT to potentially qualify for a QDMTT Safe Harbour. However, the requirements now set by the OECD (in terms of design of the rules but also its ongoing administration) are very detailed. Hence, due regard will need to be given to those requirements by Swiss government.

Treatment of transferable tax credits

The guidance clarifies certain ambiguities in the original Commentary and prior Administrative Guidance relating to tax credits. Further, it introduces a new category of tax credits (in addition to QRTCs). The new Marketable Transferable Tax Credits (MTTCs) are taken into account as part of GloBE income rather than a reduction of Covered Taxes. To qualify as an MTTC, a tax credit must satisfy a legal transferability standard and a marketability standard, which are determined separately for tax credit originators and purchasers.

Application of the Substance Based Income Exclusion (SBIE)

The guidance contains amendments to the original Commentary with respect to the application of the SBIE. Specific issues addressed are (1) interjurisdictional assets and employees, (2) simplification, (3) stock-based compensation, (4) leases, (5) impairment losses and (6) reductions due to Article 7.2 (i.e. UPE subject to Deductible Dividend Regime).

Qualified Domestic Minimum Top-up Tax (QDMTT)

The guidance supplements the February Administrative Guidance in respect of QDMTT by providing clarifications and addressing specific issues identified (e.g. treatment of Joint Venture Groups, Flow-through Entities, Minority Owned Constituent Entities and impact for an Eligible Distribution Tax System). The guidance also includes new filing obligations for a QDMTT jurisdiction.

General currency conversion rules for the GloBE Rules

To ensure effective adoption of the GloBE Rules, the guidance addresses four specific issues in relation to currency conversion for the relevant calculations undertaken by MNE groups.

  • The currency in which GloBE calculations and GIR disclosures should be made.
  • The translation of amounts relevant to GloBE calculations into the presentation currency.
  • The currency translation rules applicable for translating any Top-up Tax under the IIR or the UTPR Top-up Tax amount from the presentation currency into the currency in which the GloBE tax liability is payable.
  • The differences between the presentation currency of an MNE group and the currency in which certain GloBE thresholds are stated in domestic law.

GloBE Information Return (GIR) – separate but related release

Separate from the guidance, the IF also released an updated GIR. The updated GIR provides for a transitional simplified jurisdictional reporting framework (simplified framework), as a temporary measure that allows for simplified reporting for all fiscal years beginning on or before 31 December 2028 (but not including a fiscal year that ends after 30 June 2030).

PwC’s Tax Policy Alert ‘OECD releases Pillar Two GloBE Rules Administrative Guidance and GloBE Information Return’ provides a more detailed summary including observations of the released documents.

Pillar Two – model treaty provisions and Commentary for the Subject-to-Tax Rule (STTR)

The STTR is a treaty-based rule that allows source countries to impose an additional tax liability on certain intragroup payments in case the recipient is subject to a nominal corporate tax rate of less than 9% (adjusted for tax base reductions such as tax exemptions and tax credits). The released documents explain the purpose and operation of the STTR.

A wide range of payments between connected persons are targeted by the rule, including interest, royalties and service fees, with the notable exclusion of dividends. The STTR takes priority over the GloBE Rules and is creditable as a Covered Tax. Its implementation by countries is planned to start in October 2023 via a multilateral instrument (to allow for multiple bilateral tax treaties to be changed at the same time).

A more in-depth analysis and observations can be found in PwC’s Tax Policy Alert ‘OECD releases Pillar Two STTR’.


The newly released Administrative Guidance brings greater clarity on the matters outlined. However, many questions remain and need to be addressed. Hence, further guidance can be expected to be published on an ongoing basis later this year.

Both – the first set of Administrative Guidance released in February 2023 as well as the second set of Administrative Guidance released in July 2023 – will be incorporated into a revised version of the Commentary that will be released later this year. 

Many countries have begun implementing Pillar Two. Staying informed about the further developments is crucial for affected groups to assess the potential implications for their businesses. Actively monitoring and engaging with the evolving landscape will enable companies to adapt effectively and make informed decisions regarding the changes in international tax matters.

How PwC can support

At PwC we’re geared up to help you evaluate how Pillar Two might impact your organisation and assess what’s required for readiness.

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Contact us

Dominik Birrer

Dominik Birrer

Partner Tax, PwC Switzerland

Tel: +41 58 792 43 22

Katya Federspiel Alig

Katya Federspiel Alig

Managing Director Tax, PwC Switzerland

Tel: +41 58 792 68 61