International Tax Turmoil Makes Permanent ‘Safe Harbors’ a Must

By the time President Donald Trump declared that the 15% global minimum tax deal known as Pillar Two has no force or effect in the US, more than 50 countries have approved Pillar Two and are in the process of implementing it this year.

In this context, multinational businesses should continue to communicate and cooperate with all the stakeholders in the OECD/G20 Inclusive Framework, including the Organization for Economic Cooperation and Development and G20 nations.

Doing so will allow businesses to help the OECD and Inclusive Framework to arrive at practical and administrable solutions to the issues Pillar Two is intended to address. It will also help create stability and certainty for businesses that will benefit trade and investment.

Pillar Two creates a framework of “top-up” tax rules intended to ensure multinationals are subject to an effective tax rate of at least 15% in every country where they operate. Businesses have been concerned about the significant compliance costs and complexity in implementing Pillar Two rules.

The OECD released guidance in January on an updated Global Anti-Base Erosion information return, or GIR, and related commentary such as transition rules on deferred tax assets. These guidance documents illustrate the enormous complexity of navigating the Pillar Two rules for businesses.

Under the updated GIR rules, businesses will have to report and compute tax for every country under at least three separate sets of rules: normal local tax rules, global model rules of Pillar Two, and local implementation of those rules. The GIR further places the responsibility on multinationals to identify and report any differences in their country’s legislation and the Global Anti-Base Erosion Model Rules on the GIR.

With transitional safe harbors expiring for fiscal years beginning after Dec. 31, 2026, both multinationals and tax administrations face immense burdens to provide proper compliance documentation. Businesses are advocating for simplified rules as well as an effective permanent safe harbor to reduce the burden of Pillar Two compliance.

A permanent safe harbor should apply simplified tests—like the transitional safe harbor does—to determine if entities are subject to a jurisdiction’s top-up tax. If they aren’t subject to the tax, they wouldn’t have to perform full GloBe calculations and reporting.

An effective permanent safe harbor would be grounded on three core principles. First, it would adopt a gateway approach or risk assessment tool and not a “slimmed down” version of the model rules. Businesses shouldn’t be expected to demonstrate that applying the model rules would lead to the same outcome as the safe harbor.

Second, a permanent safe harbor should be based on the existing reporting packages used for group financial statements to allow businesses to leverage on their existing systems.

Third, there should be select calculation adjustments that safeguard the integrity of the rules without damaging the benefit of a simplified safe harbor. Adopting a permanent safe harbor would alleviate the compliance burden for both multinationals and tax authorities that will have to process enormous amounts of data after transitional safe harbors expire.

Examining US concerns about Pillar Two rules could present an opportunity to review certain aspects of the rules, particularly considering the complexity and other unintended consequences. For businesses operating in multiple jurisdictions, easing compliance, and improving certainty and stability in international tax rules is crucial.

Companies need predictable and consistent tax policies to make well-informed long-term financial decisions. A stable and predictable tax environment encourages businesses to invest in new markets and drive economic growth and innovation worldwide.

Consulting with business ensures that tax policies support these objectives. The OECD and the Inclusive Framework continue to play an essential role as the forum for multilateral cooperation on international tax.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Alan McLean is the tax committee chairman at Business at OECD.

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