An important clarification in the memorandum concerns the applicability of the temporary safe harbor rule. Group units covered by the so-called eligible dividend tax systems (which exist among others in Estonia and Latvia) may be subject to a special treatment under Article 7.3 of the Model Rules which enables the consideration of a fictitious tax. The memorandum now clarifies that if a group chooses to apply the rule in Article 7.3, the group may not use the temporary safe harbor rule for the state concerned during the remainder of the transition period. If the group instead chooses not to apply Article 7.3, the affected group may use the temporary safe harbor rule in the relevant state for the first financial year. For groups with operations in these countries, an active choice needs to be made.
Another welcome clarification in the memorandum concerns the routine profits test which is the third test in the temporary safe harbor rule. According to the routine profits test in the model rules, the additional tax amount must be zero for an individual state if the group entities in the concerned state have a profit according to the group's country-by-country (CbC) report that does not exceed the net amount, calculated according to article 5.3 of the model rules. The memorandum now clarifies that 5% must be used in the calculation of this amount and not 10% and 8%, respectively, because Article 5.3 lacks reference to Article 9.2 (which contains a temporary increase in the substantive amount when applying the ordinary rules). Although this makes it more difficult to meet the test, it is a clarification because the groups now know what applies before any calculations according to this test.
Although the temporary safe harbor rule is largely consistent with the OECD rule, it is an interesting feature that national groups are not covered. The way the rules are now designed, national groups that fall under the scope of the directive will have to make a complete calculation according to the rules on additional tax already in the first year. In this regard, however, the memorandum states that the international work in this area is not finished and that there may be reason to return to this issue. It can be added that for groups operating in a maximum of six states there is a phasing-in rule which means that the additional tax must be zero during the first five years, provided that certain conditions are met. However, whether and to what extent the reporting obligation will be reduced is not clear from the proposed rules.
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