Optimizing tax compliance: Understanding UTPR, QDMTT, and Simplified Calculations Safe Harbours for MNE

In this blog post, we take a look at the transitional UTPR Safe Harbour, the Qualified Domestic Top-Up Tax Safe Harbour (QDMTT) and the Simplified Calculations Safe Harbour within the framework which are designed to reduce the compliance burden of MNEs. The transitional CbCR Safe Harbour is not covered by this blog post. You can find further information regarding the CbCR Safe Harbour

 

Note: The UTPR Safe Harbour only provides relief for the UPE jurisdiction. Constituent entities located in another jurisdiction for GloBE purposes, do not benefit from the UTPR Safe Harbour.

 

What is the transitional UTPR Safe Harbour?

The transitional UTPR Safe Harbour is designed to provide transitional relief in the UPE Jurisdiction during the first two years in which the GloBE rules come into effect. The UTPR Safe Harbour is applicable for fiscal years which run no longer than 12 months that begin on or before 31 December 2025 and end before 31 December 20261. When applicable, the UTPR top-up tax amount calculated for the UPE jurisdiction shall be deemed to be zero for respective fiscal years.

 

How to benefit from the UTPR Safe Harbour?

In order to benefit from the UTPR Safe Harbour, the UPE of an MNE has to be located in a jurisdiction that has a statutory combined tax rate of at least 20%. The nominal 20% rate test ensures that only MNE groups whose UPEs are located in a jurisdiction with a corporate income tax system and sufficiently high corporate income tax rate benefit from this safe harbour.

What is the permanent QDMTT Safe Harbour?

The QDMTT Safe Harbour is one of (currently) two permanent Safe Harbours within the framework designed to simplify compliance for MNEs operating in jurisdictions that have adopted a QDMTT.

This Safe Harbour aims to eliminate the need for MNEs to perform an additional GloBE calculation on top of the QDMTT calculation required under local law. However, the fact that an MNE is not required to make an additional calculation under the QDMTT Safe Harbour may give rise to integrity risks. Hence, a QDMTT must meet an additional set of standards to qualify for the Safe Harbour:

1. QDMTT accounting standard: The QDMTT accounting standard requires a QDMTT to be computed based on the UPE’s financial accounting standard or a local GAAP subject to certain conditions.
2. Consistency standard: The consistency standards requires QDMTT computations to be basically the same as the computations required under the GloBE rules. However, deviations are allowed, when the inclusive framework explicitly requires a QDMTT to depart from the GloBE rules or where the inclusive framework decides that an optional variation that departs from the GloBE rules still meets the standard.
3. Administration standard: The administration standard requires the QDMTT jurisdiction to meet the requirements of an on-going monitoring process. The ongoing monitoring process will include a review of the information collection and reporting requirements to ensure that they are consistent with the equivalent requirements under the GloBE rules and the approach set out in the GloBE information return.

 

Who determines whether a QDMTT qualifies for a Safe Harbour?

A peer review process will determine whether a minimum tax can be considered a QDMTT. However - as of now - the peer review process is still to be developed by the inclusive framework.

What is the permanent Simplified Calculations Safe Harbour?

Where an MNE operates in a jurisdiction and does not meet the requirements of a transitional Safe Harbour, the MNE may still qualify a permanent safe harbour. This Simplified Calculations Safe Harbour is – as of now – limited to non-material entities of the MNE group. Non-material entities are those identified during the preparation of the consolidated financial statements of UPE and are subject to the assessment of an external auditor.

 

How to benefit from the Simplified Calculations Safe Harbour?

In order to benefit from the Simplified Calculations Safe Harbour, a „tested jurisdiction” needs to meet one of the following three tests set out in Sec. 79 para. 1 No. 1-3 MinStG:

Data requirements: What data to use for the Simplified Calculations Safe Harbour?

The CbCR Safe Harbour relies on data taken from the MNE groups CbCR for determining the Simplified Calculations Safe Harbour. According to Sec. 80 para. 2 MinStG, the GloBE revenue and the GloBE income is equal to the revenue taken from the CbCR pursuant to Sec. 138a German Tax Code deducting

i. profit distributions from other constituent entities of the same MNE group and

ii. revenue and profit shown in other operating income.

 

The adjusted covered taxes are the income tax accrued as determined in accordance with the CbC report pursuant to Sec. 138a German Tax Code. However, any deferred taxes, provisions for uncertain tax liabilities must not be considered.

 

Wrapping up: Safe Harbours bring relief and tax certainty

Safe Harbours are important because they play a significant role in reducing compliance and administrative costs for MNEs and improving tax certainty. They provide relief by allowing MNEs to avoid detailed GloBE calculations in low-risk jurisdictions. This is particularly crucial as MNEs and tax administrations adapt to the new rules. Safe Harbours also help in minimizing the compliance burden by permitting simplified income, revenue, and tax calculations.

 

Solutions for tax compliance

Would you like to know how you can implement the legal requirements in the tax area with Lucanet? 

In line with the Pillar 2 module, we provide comprehensive technical and organizational support to help companies navigate these challenges. Key areas of focus include both manual and automated data collection, whether centralized or decentralized, as well as the documentation and evaluation of this data. This process will form the foundation of your calculations and declarations.

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