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Leaked OECD Rules Paint Clearer Picture of Minimum Tax (1)

Dec. 15, 2021, 5:14 PMUpdated: Dec. 16, 2021, 8:41 PM

The details around how companies will have to calculate a newly agreed global minimum tax are nearing final form, according to a document seen by Bloomberg Tax.

The document—confirmed by a source familiar with discussions—sets out model legislation for implementing the 15% minimum tax, known as Pillar Two. It was circulated to the roughly 140 participating countries Dec. 2, asking for their approval before the Organization for Economic Cooperation and Development releases final rules. According to the document, if countries didn’t object by Tuesday the model legislation will be considered approved.

The OECD declined to comment.

The model rules—if approved—would fill in details on key open questions following countries’ October agreement on the minimum tax—including defining what kind of payroll and tangible asset costs are eligible for a carve-out from the rule, and how the rules will deal with timing differences between when profits are recorded and when taxes are paid.

Countries would be able choose to implement the minimum tax, known as Pillar Two, into their domestic legislation—basing their law on the model rules. The rules would be put to use almost immediately, with the European Union planning to release a directive Dec. 22 that would require its 27 member countries to implement the rules themselves.

The OECD said Thursday the model rules would be released Dec. 20.

The other part of the global plan, known as Pillar One—which will reallocate a portion of multinationals’ profits to more countries—will be implemented through a multilateral treaty the OECD aims to complete in the first half of 2022.

Defining Carve-Outs

The document seen by Bloomberg Tax fills in more details about what income companies would be able to leave out of the minimum tax rules, including defining in detail which tangible assets and payroll costs are eligible for the exclusion.

The October agreement said companies would get a carve-out on income for 5% of the carrying value of their tangible assets and payroll, with a transition period that offers an exclusion of 8% of tangible assets and 10% of payroll.

The Dec. 2 document would define eligible payroll costs to include salary and wages, health insurance, pension contributions, and payroll taxes. Eligible tangible assets include items located in a jurisdiction, like property, natural resources, a lessee’s right to use tangible assets, and certain government licenses, including ones to exploit natural resources.

Timing Differences

One of the questions facing the rules’ architects has been how the rules, which use financial accounting, should treat timing differences between when companies report their profits versus pay their taxes—for example, deals that span multiple years.

The Dec. 2 document deals with this problem by using principles of deferred tax accounting—an accounting treatment to allow companies to elect when they pay tax on profits related to a transaction that stretches over multiple years.

A recapture mechanism puts a five-year limit on how long companies can keep deferring tax on some items until they have to pay minimum tax owed on them.

The rules also list types of gains and costs that can be deferred without the five-year restriction—including research and development expenses and foreign currency exchange gains.

—With assistance from Chris Condon.

(Updates with date of rules' release in sixth paragraph. Earlier version removed incorrect example of item subject to recapture rule in penultimate paragraph.)

To contact the reporters on this story: Hamza Ali in London at; Isabel Gottlieb in Washington at

To contact the editors responsible for this story: Meg Shreve at; Vandana Mathur at