
Switzerland Opens Consultation for Applying OECD GIR Provisions
On April 30, 2025, the Swiss Federal Council issued a proposal to amend the Minimum Tax Ordinance to provide for the OECD GIR provisions, as well as some other small amendments.
As a permanent establishment (PE) is treated as a separate entity for Pillar Two GloBE purposes the Pillar Two GloBE income of a PE needs to be determined.
However, the Pillar Two GloBE income rules rely on the financial accounts of the entity which may include the profits attributable to a PE (ie for financial accounting purposes, a PE is not always recognized and there may not be separate financial accounts).
Therefore, Article 3.4 of the OECD Model Rules includes provisions to allocate the income between an entity and its PEs.
Where a PE exists under a tax treaty, domestic law or would have existed in a jurisdiction with no corporate income tax if there was a tax treaty in place if there are separate financial accounts for the PE, these apply, and the net income or loss is used.
If there are no financial accounts in place, accounts would need to be prepared based on the accounting standard the UPE used to prepare the consolidated financial accounts. The amount of income and expenses attributed to the PE are based on the provisions of the relevant tax treaty or domestic law.
Note that whilst the tax treatment of the income in the PE jurisdiction has no impact on the allocation to the PE jurisdiction, timing differences may adjust the treatment.
The Pillar Two GloBE rules deem there to be a PE where there is no actual PE, and the income deriving from the activities of the PE is exempt in the residence jurisdiction (ie the residence of the main entity).
In this case, the amount attributable to the PE is the amount of tax-exempt income as well as any expenses not taken into account by the main entity because they are attributable to foreign activities.
Given income or losses are attributable to PEs if they are included in the financial accounts of the main entity they would need to be deducted when calculating Pillar Two GloBE income.
If there is a loss in a PE, this will be treated as an expense of the main entity under Article 3.4.5 of the OECD Model Rules to the extent that the loss of the PE is treated as an expense for domestic tax purposes.
Pillar Two GloBE income that is subsequently earned by the PE is treated as income of the main entity up to the amount treated as an expense by the main entity.
In general, for tax purposes the income of transparent entities (eg tax transparent partnerships, LLPs and LLCs) is taxed on the underlying owners. However, for accounting purposes, these entities would generally have their own financial accounts.
Given the Pillar Two GloBE rules rely on financial accounting information, specific additional rules are provided in Article 3.5 of the OECD Model Rules to correctly allocate the income of transparent entities in a way that reflects most domestic tax treatment.
Firstly, the financial accounting net income or loss of a transparent entity or reverse hybrid is reduced by any amounts due to owners that aren’t members of the MNE group. This is necessary as the Pillar Two GloBE ETR of the group members won’t include income or taxes paid by non-group members.
Secondly, if the transparent entity or reverse hybrid carries our business through a PE, this needs to be deducted from the accounting income of the transparent entity or reverse hybrid, given that PEs are treated as separate constituent entities for Pillar Two GloBE purposes.
Finally, any remaining amount of the financial accounting income or loss is allocated:
– To the owners if the entity is a transparent entity (based on their ownership interest). This can flow up the chain if there are a number of transparent owners.
– To the entity itself if the entity is a reverse hybrid
– To the UPE if the entity is a transparent entity and the UPE of the MNE group.
On April 30, 2025, the Swiss Federal Council issued a proposal to amend the Minimum Tax Ordinance to provide for the OECD GIR provisions, as well as some other small amendments.
On March 31, 2025, Japan enacted Cabinet Order No. 121 of 2025 and Ministry of Finance Ordinance No. 19 of 2025 to provide further details on the application of Japan’s QDMTT from April 1, 2026.
In April 2025, the Hong Kong Government proposed a number of Committee Stage Amendments to the Inland Revenue (Amendment) (Minimum Tax for Multinational Enterprise Groups) Bill 2024. This includes amendments for the January 2025 and June 2024 OECD Administrative Guidance.
South Korea’s amendment to the Enforcement Decree No. 35348 of February 28, 2025 and the Decree of the Ministry of Economy and Finance No. 1114 of March 21, 2025 provide for further aspects of the June 2024 OECD Administrative Guidance as well as additional top-up tax forms.
Updates to our ‘OECD Administrative Guidance: Domestic Implementation Matrix’ to reflect the latest April 2025 Pillar 2 updates for the UAE and Poland.
On April 7, 2025, the Polish Ministry of Finance released details for a draft bill to amend the Minimum Tax Act. The amendments are primarily to implement the June 2024 and January 2025 OECD Administrative Guidance.
On April 16, 2025, the Ministry of Finance issued Ministerial Decision No. (88) of 2025 to provide for the application of the OECD Administrative Guidance from January 1, 2025.
The UTPR exclusion for MNEs in their initial phase of international activity does not need to be included in a QDMTT, however, it can be included. In this article we look at the different jurisdictional approaches.
On January 15, 2025, the OECD issued Administrative Guidance that includes a list of jurisdictions that have transitional qualified status for the purposes of the income inclusion rule and domestic minimum tax (including the QDMTT Safe Harbour). This was subsequently updated on March 31, 2025.
Cookie | Duration | Description |
---|---|---|
cookielawinfo-checkbox-analytics | 11 months | This cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Analytics". |
cookielawinfo-checkbox-functional | 11 months | The cookie is set by GDPR cookie consent to record the user consent for the cookies in the category "Functional". |
cookielawinfo-checkbox-necessary | 11 months | This cookie is set by GDPR Cookie Consent plugin. The cookies is used to store the user consent for the cookies in the category "Necessary". |
cookielawinfo-checkbox-others | 11 months | This cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Other. |
cookielawinfo-checkbox-performance | 11 months | This cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Performance". |
viewed_cookie_policy | 11 months | The cookie is set by the GDPR Cookie Consent plugin and is used to store whether or not user has consented to the use of cookies. It does not store any personal data. |