Comments on OECD’s global anti-base erosion (GloBE) proposal under Pillar Two

4 December 2019

The Organisation for Economic Cooperation and Development (OECD) this week received comments—including a comment letter from KPMG (discussed in more detail below)—relating to a consultation document on Pillar Two of the BEPS Inclusive Framework and the tax challenges associated with the digitalization of the economy.

The OECD’s consultation document (released 8 November 2019) requested comments and input on certain features of Global Anti-Base Erosion (GloBE) proposal. A public consultation will be held at OECD offices near Paris next week. Read the comment letters and other information on the Pillar Two proposals on the OECD website.


The GloBE proposal features four component rules:

  • An income inclusion rule that would apply a top-up tax to income taxed below a specified minimum rate
  • An undertaxed payments rule that would deny deductions for payments taxed below the minimum rate
  • A switch-over rule that would in certain instances permit taxation of otherwise exempt profits when such profits are taxed below the minimum rate
  • A subject-to-tax rule that would subject payments taxed below the minimum rate to withholding

The OECD consultation document does not address the interaction and ordering of these rules, which remain unclear, but instead requested comments on three areas:

  • The use of financial accounts as a basis for determining GloBE tax, including the need for adjustments to such accounts
  • The appropriate level of blending of high- and low-taxed income for purposes of determining the effective tax rate
  • Carve-outs and thresholds

Comments from KPMG

KPMG International earlier this week submitted comments in response to the OECD public consultation document on Pillar Two of the BEPS Inclusive Framework and the tax challenges associated with the digitalization of the economy.

Read KPMG’s comment letter [PDF 119 KB]

KPMG’s comments address each of the three areas (noted immediately above), and also provide input on the interaction of the GloBE rules, given that the optimal solutions to the three issues on which the OECD requested input will vary depending on how the overall proposal is designed. The authors of the KPMG comment letter:

  • Recommended that the GloBE proposal be framed as an acceptable anti-base erosion regime with appropriate guardrails that countries would be free to adopt, rather than a mandatory minimum standard
  • Expressed a belief that, in particular, the U.S. global intangible low-taxed income (GILTI) rules—and other income inclusion regimes that are deemed satisfactory—should be considered as white-listed equivalents to the GloBE income inclusion rule, and recommended that the income inclusion rule (or a white-listed equivalent) take priority over the other GloBE rules

GILTI does not use financial accounts as a starting point, and the authors of the KPMG comment letter therefore did not recommend that the use of financial accounts should be required, although financial accounts would provide a useful basis for the GloBE income inclusion rule. KPMG’s comment letter discusses the respective benefits of jurisdictional and worldwide blending, recognizing worldwide blending as more administrable. The authors of the KPMG comment letter also recommended that the Inclusive Framework adopt several carve-outs—including a carve-out for a return on tangible assets (which would be consistent with GILTI), as well as carve-outs for specific sectors, such as shipping, extractives, and highly regulated industries, as well as for the charity and not-for-profit sector.

Lastly, the KPMG comment letter recommends that any solution under Pillar Two include robust dispute resolution mechanisms, including mandatory binding arbitration. KPMG’s comments include recommendations for modifying existing arbitration procedures to deal with multilateral disputes and to address the concerns articulated by some developing countries.


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