Building on the Base Erosion and Profit Shifting (BEPS) initiative that culminated in the Multilateral Instrument (MLI), which has achieved fundamental changes to treaties, the Organisation for Economic Cooperation and Development’s (OECD) Secretariat continues to pursue an in-depth and comprehensive international tax reform.

In the fall of 2019, the OECD’s Secretariat issued a consultation document on digital taxation (“Pillar 1”). This document proposed new taxation rules to ensure that digital businesses pay tax in the jurisdictions in which they operate even if they do not have a traditional physical presence (nexus or a permanent establishment).

In November2019, the OECD Secretariat issued the Global Anti-Base Erosion Proposal (GloBe”) – Pillar 2 document in which it outlined its proposals to further reform international taxation. As discussed below, the proposals are far-reaching, and the OECD has received over 3,000 pages of feedback from various stakeholders.

Pillar Two’s objective is to implement a worldwide minimum income tax system and to ensure that there is also a minimum amount of cash tax is paid by multinationals (MNEs). At this time, the Secretariat has not indicated an income threshold; hence, it could apply to larger MNEs (for example those that are subject to transfer pricing country-by-country (CbC) rules because their sales are greater than €750 million) and to smaller entities. Also, the Pillar Two proposal has not specified what the minimum target income tax rate should be.

Components of Pillar Two – GloBE

The four components of the GloBE are:

  • An income inclusion rule to allow a jurisdiction to tax the income of a foreign branch or a controlled foreign corporation (CFC) if that income is taxed at an effective rate that is below the minimum rate;
  • An undertaxed payments rule to deny a deduction or impose a withholding tax on payments to a related party if that payment is taxed at an effective rate that is below the minimum rate;
  • A switch-over rule to support the income inclusion rule that would introduce a treaty provision that would allow a switch from an exemption to a credit method if income of a permanent establishment (PE) is taxed at an effective rate that is below the minimum rate. This rule could also apply to immoveable properties that are not part of a PE;
  • A subject to tax rule to support the undertaxed payment rule by subjecting payments that are taxed at a rate below the minimum rate subject to withholding tax and/or by denying the tax treaties’ benefits.

There is a significant overlap between the four components of GloBE and it is far from clear how they will interact with each other or whether countries will be provided a choice as to the means to be used to achieve the Pillar Two objective of establishing a minimum effective tax rate.

Tax base and consolidated financial statements

The GloBE suggests that consolidated financial statements should be used to determine the tax base. The use of consolidated financial statement raises a number of issues, such as:

  • The choice of Generally Accepted Accounting Principles (GAAP) to be used (US, Japanese, International Financial Reporting Standards or local GAAP);
  • The impact of items denominated in foreign currencies on the Currency Translation Account (CTA);
  • The taxation of foreign exchange operations and the choice of currency for the payment of taxes;
  • The impact of permanent and temporary differences;
  • The appropriateness of changes to the tax base as a result of accounting principle changes;
  • The ability to audit consolidated financial statements by local taxation authorities;
  • The ability to standardize tax rules – for example to take into account the diversity of tax treatment for the deductibility of stock-based compensation, the deductibility of interest expense, etc.

Interaction between Pillar One and Pillar Two

The interaction between Pillar One and Pillar Two proposals is unclear. Presumably, Pillar One on digital taxation would apply to a MNE before Pillar Two applies. Therefore, it would seem logical that any taxes paid as a result of the application of Pillar One would be taken into account in computing the minimum taxes paid on income. However, the interaction and the interdependency of the two Pillars need clarification.

Another critical element that has not been addressed is to determine how and where the tax would be collected according to the organisational structure of the company. We believe that the GloBE proposal should be applied at the ultimate parent level. For example, A owns B and B owns C. A would apply the GloBE provisions to the income generated by B and by C. And, as long as A applies the GloBE proposal to the income generated by B and by C, B would not apply the provisions to the income generated by C. However, the proposal could also be interpreted as being applicable at each level in the organisational structure where a branch or a subsidiary is controlled by a member of the group. The determination of which legal entity or entities in the group are within the scope of the proposal is another critical issue that needs to be addressed. A bottoms-up approach toward taxation at each level in the organisational structure would be immensely complex and time consuming for taxpayers.

Lastly, the interaction with a particular jurisdiction’s CFC rules must be taken into account, otherwise, double or triple taxation could arise.

Too soon for GloBE?

As noted above, BEPS has introduced important changes to tax systems within the OECD. As a result, significant measures to protect countries’ tax base have recently been introduced in various countries including the following:

  • Interest deductibility rules (generally based on a percentage of EBITDA – earnings before interest, taxes, depreciation and amortization);
  • CFC legislation that should contribute to achieve a minimum taxation rate if it is properly implemented;
  • Anti-hybrid legislation that eliminates tax arbitrage obtained from exploiting various tax classifications by the countries;
  • Tightening of rules to limit tax benefits that may be obtained with regard to intellectual property;
  • The introduction of a principal purpose test in tax treaties which will greatly limit the ability to obtain lower withholding tax rates in the source jurisdiction if taxpayers do not have substantive economic presence in the country of residence via the MLI;
  • Modifications to transfer pricing guidelines (BEPS action items 8-10);
  • Tax treaty provisions regarding PE status (BEPS action 7).

We believe that the OECD should continue to monitor the effectiveness and efficiency of these recently introduced changes and should continue to study measures that reform international taxation with approaches similar to GloBE or Pillar One proposals.

If the enacted measures outlined above do not achieve the tax policy objectives of protecting national taxation bases and of having MNEs paying a minimum tax due to meaningful CFC legislation, the introduction of GloBE type measures should then be seen as a means to this end.

Torn world – is there sufficient consensus to implement international tax changes?

The Pillar One and the Pillar Two proposals can only be achieved if there is a consensus among jurisdictions – otherwise double taxation will result.

In early December, the US Treasury Secretary indicated that the US has “serious concerns” with respect to certain aspects of Pillar One (digital taxation) proposals that could constitute a mandatory departure from the arm’s length principle and from the related nexus rules. The Secretary also announced that the US fully supports a GILTI-like Pillar Two proposal (“Global Intangible Low-Taxed Income” ) – perhaps by restricting the type of changes that the US is likely to accept in order to reach a consensus on reforming international taxation.

International taxation and digital taxation will continue to fuel discussions within the international community, including G20. For example, the Office of the US Trade Representatives (USTR) outlined a proposal on December 2 to impose additional duties of US$2.4 billion on French products (including champagne, cheese, cast-iron cookware) in response to the recently introduced French digital service tax.

For a more in-depth discussion of the issues raised by the GloBE proposals, please consult our detailed comments to the OECD.

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We begin this third edition of 2019 by considering the amendments issued by the International Accounting Standards Board (IASB) Interest Rate Benchmark Reform (amendments to IFRS 9 Financial Instruments, IAS 39 Financial Instruments: Recognition and Measurement and IFRS 7 Financial Instruments: Disclosures).

We then look at the current IASB Exposure Drafts that are out for comment and move on to IFRS related news at Grant Thornton and other news.

We conclude with a summary of the implementation dates of recently issued standards.

A list of the documents currently out for comment by the IASB and their respective comment deadlines is available at

We are currently finalizing a new publication strategy for 2020 and, as a result, some of our publications will change in the upcoming months. Watch this space!

Download the document below.

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Would you like to reduce your income taxes? Although tax planning should be a year-long activity, there is still some time left to implement a few tax strategies that will help reduce your tax bill.

Furthermore, there are certain new measures coming into effect beginning in 2020 that should be taken into consideration.

The following are a few simple, effective strategies that can be implemented before the end of 2019 or early in 2020.

Don’t hesitate to contact your Raymond Chabot Grant Thornton advisor who can help you determine the measures that apply to your situation.

Read the document below.

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You’ve successfully attracted the best talent to your business. Now you have to ensure that you retain these invaluable resources.

Recruiting staff has become a major challenge for businesses. Managers have to adapt to a shifting market and generational changes.

In this highly competitive context, your business has to master the art of recruiting as well as retaining and mobilizing employees.

Rethink the corporate culture

The intermingling of generations in an organization can lead to disparity and the need to deal with diverse values and expectations. It’s a factor that managers must consider carefully by rethinking the corporate culture to ensure they retain their talent.

For Gen Xers and Gen Yers, the long-term commitment to an employer is not as important as it is for prior generations. Individual well-being, transversal leadership, innovation, social engagement and working conditions such as flexible hours, salary, the dress code and benefits are key areas on which the new generations focus.

Why not consider undertaking a diagnosis of your working environment? A structured approach could help you rethink your policies, onboarding and integration process or values.

A corporate culture aligned with your business objectives will guide decision-making and behaviours. It will help you stand out from the competition and make your organization an employer of choice.

Review management methods

Fair and efficient management methods will support the implementation of your organization’s strategic directions and enable it to achieve its strategic and financial objectives. These methods could include, among others:

  • Aligning your management model and business plan with consistent decision-making leadership;
  • Managing future labour requirements based on business objectives;
  • Implementing various communication mechanisms that will foster a sense of belonging and develop the corporate culture;
  • Introducing recognition programs: they must be positive, genuine and constant;
  • Transferring knowledge and developing competencies;
  • Managing the performance and career of the strongest talent;
  • Focussing on a distinctive offering in terms of the overall compensation package (financial and non-financial);
  • Planning the succession to ensure the smooth continuity of the business.

The corporate culture and management methods are key loyalty factors. In the current workforce shortage context, employee turnover is costly. Now more than ever, it’s vital to establish a structured plan to retain resources.

Our team of human resource consultants can support you in all phases of employee management, from hiring to coaching managers. Call on our in-depth knowledge to boost your organization’s success.