OECD Consultation on the Pillar Two GloBE Information Return

On December 20, 2022, the OECD published a consultation document on the Pillar Two GloBE Information Return. The consultation runs until February 3, 2023. 

The consultation is primarily focused on the information and data that MNEs may need to collect and report in the GloBE information return. 
Anyone with any doubt as to the scale and complexity of the application of the Pillar Two GloBE rules for MNEs need only look at Annex A1 in the consultation document that includes 21 pages of data that may need to be collected and reported. There are 268 data points listed that cover group data, data required by country, data required by an entity, and data required for top-up tax by jurisdiction.
The OECD notes that it is not expected to be necessary, in all cases, for MNE Groups to collect all this information for each constituent entity and jurisdiction to determine whether there is a top-up tax liability in a jurisdiction. Of key importance will be the GloBE safe harbours which can substantially simplify the compliance burden. 
One of the aims of the consultation is to determine the amount of data that would need to be included in the GloBE information return and reported to tax authorities. 
There is a balance between requiring too much upfront information which would represent a substantial compliance burden for MNEs and would increase administrative and compliance costs, and not requiring sufficient information to accurately support the top-up tax calculation (which could also increase MNEs compliance costs if tax authorities then needed to request the information). 
Therefore, the main thrust of the GloBE information return consultation is to determine the amount and type of GloBE information that MNE Groups should be expected to collect, retain and report to tax authorities. 
Whilst there is a default requirement for each constituent entity to file a GloBE information return, under Article 8.1.2 of the Model GloBE Rules, this does not apply when the UPE or a designated filing entity files the GloBE information return with the tax authority of the jurisdiction where it is located if there is a Qualifying Competent Authority Agreement in place to exchange GloBE information with the jurisdiction of the Constituent Entity.
This will require either bilateral or multilateral competent authority agreements for the exchange of information as well as an XML schema to facilitate exchange.
Data Points
Nevertheless the sheer number of data points in the Annex should be considered, particularly since the first GloBE return will generally need to be filed by 30 June 2026.
Whilst some will already be collected and stored and can simply be taken from financial accounting systems, others will require considered input from tax departments (eg determining who accounts for top-up tax – the UPE, POPE or intermediate parent company).
The Pillar Two data points are therefore the lynchpin of an effective strategy to implement systems changes to apply Pillar Two.
Data will need to be extracted from Enterprise Resource Planning Systems and Enterprise Performance Management Systems, but additionally information from the domestic tax computation and group structure information will be required (eg to determine tax residency or the allocation of income/tax between a main entity and a permanent establishment). 
In general,  the approach will be to undertake a Pillar Two tax data assessment. This will firstly involve identifying the required data points for the Pillar Two GloBE ETR calculation and then mapping these requirements to data sources.  
As identified above, an MNE may already have data sources that are used in other tax data assessments (eg CbCR). If this is the case, those data points can be utilised for Pillar Two purposes. Wherever possible existing data points should be used to ensure conformity across different tax reports. 
Once the data is extracted it is then cleansed and stored for use by the tax department. The methodology will be determined by the MNEs own systems. For instance, under Article 3.2.1(g) of the OECD Model Rules, Pillar Two requires fines and penalties to be added back if they are 50,000 euros or more.
Whilst fines and penalties will already be an existing data point for financial accounting and domestic tax purposes, the 50,000 euros threshold likely won’t be. The data mapping could create a separate data point derived from the existing source data point for fines and penalties to specifically carve out a Pillar Two fines add back figure.
The deferred tax recapture and transition rules are also particularly complex for MNEs to track.
Whilst the Safe Harbours include a Transitional Penalty Relief Regime, this only applies for fiscal years beginning on or before December 31, 2026 and not after June 30, 2028.
For more information on MNE systems challenges see: