KPMG report: Initial observations of OECD report on tax incentives and the global minimum tax

A KPMG report that provides initial observations on the OECD report on tax incentives and global minimum tax

A KPMG report that provides initial observations on the OECD report

The Organisation for Economic Cooperation and Development (OECD) on 6 October 2022 released a report entitled “Tax Incentives and the Global Minimum Tax: Reconsidering Tax Incentives after the GloBE Rules” [PDF 3.05 MB]. Read TaxNewsFlash

The main thrust of the nearly 80-page report is that now is the time for jurisdictions to assess their current tax incentives in preparation for the arrival of Pillar Two.

The report points out that taxpayers will be affected differently when considering the interaction between the Global Anti-Base Erosion Model (GloBE) rules and incentives, noting that:

  • Many companies will be under the €750 million threshold.
  • The substance-based income exclusion will mean those companies with greater substance in a jurisdiction will be less affected.
  • Targeted incentives are less likely to be affected than broad ones, all else being equal.

Leveraging from work previously undertaken by the OECD, the report asserts that expenditure-based tax incentives are more effective than income-based incentives—particularly for those based on payroll and tangible assets. On tangible assets, the report notes that the GloBE rules do not affect incentives based on faster recovery of the cost of tangible assets or immediate expensing given the treatment of timing differences. The report also says that refundable tax credits (often R&D incentives) are treated in a similar manner to cash grants and therefore not adversely affected.

Read an October 2022 report [PDF 107 KB] prepared by KPMG tax professionals that provides initial observations on the OECD report


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