Kassel, Germany

Global Anti-Base Erosion Proposal (GloBE) Pillar-Two

By Bernhard Schwechel, FACT GmbH

Pillar Two calls for a coordinated set of rules to address ongoing risks from structures that allow multinational entities (MNEs) to shift profits to jurisdictions where they are subject to no or very low taxation:

  • An income inclusion rule to tax the income of a foreign branch if it was subject to tax below a minimum effective rate.
  • An undertaxed-payment rule to deny a deduction, including withholding tax, for payments to a related party that are subject to tax below a minimum effective rate.
  • A switch-over rule in tax treaties to permit a residence jurisdiction to switch from exemption to a credit method if profits of a permanent establishment (PE) or derived from immovable property are subject to tax below a minimum effective rate.
  • A subject-to-tax rule to complement the undertaxed-payment rule by applying withholding or sourcebased taxes and adjusting treaty benefits on certain items of income when the payment is subject to tax below a minimum effective rate.

To determine the tax base by using financial accounts:

  • Whether using financial accounts, could provide an appropriate base for measuring income.
  • To use accounting standard of the ultimate parent entity instead of the local generally accepted accounting principles.
  • Consideration of consolidated financial statements even if not prepared for other purpose.

Blending: The extent to which a business can combine low-tax and high-tax income when calculating its effective tax rate/rates

  • A worldwide blending approach
    – requiring a business to aggregate its total foreign income and total foreign tax.
  • A jurisdictional blending approach
    – requiring businesses to aggregate amounts on a jurisdiction-byjurisdiction basis, paying additional tax in respect of the income in those jurisdictions effectively taxed below the minimum rate.
  • An entity blending approach
    – requiring the calculation of income, taxes, and effective tax rates of each individual group entity (and foreign branch).


The impact of Pillar II will be to generate additional tax payments for those groups with low-tax elements to their structures. The overall level of additional taxes paid will be affected by the minimum tax rate chosen but is also likely to be closely related to the level of blending adopted.

Bernhard Schwechel

Bernhard Schwechel

GGI member firm
FACT GmbH Wirtschaftsprüfungsgesellschaft
Tax, Auditing & Accounting, Advisory, Corporate Finance, Fiduciary & Estate Planning
Kassel, Germany
T: +49 561 316 6860
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FACT GmbH Wirtschaftsprüfungsgesellschaft is a tax consultancy, public auditing company, and law firm located in Kassel, known as the heart of Germany. FACT provides German and international accountancy and tax services to companies and individuals. The expe rienced team works on cross-border issues for German clients as well as for foreign clients. FACT works closely with its clients and responds rapidly to their needs.

Bernhard Schwechel is a Managing Partner of FACT GmbH and is experienced in the field of international taxation. His areas of expertise include tax and business advice for large multinational corporations and mid-size companies, as well as for internationally oriented individual clients. He supports his clients in inbound and outbound M&A projects.

Published: International Taxation Newsletter, No. 12, Spring 2020 l Photo: Stefan Kaulbarsch - stock.adobe.com

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