#BEPSTalkSeries 1/5 - BEPS 2.0: Unpacking the Safe Harbour Concept

In the evolving landscape of Transfer Pricing, the OECD’s BEPS 2.0 initiative introduces crucial changes to ensure fair taxation. It becomes imperative to start with the measures taken by OECD to provide relieve to MNEs. Hence, lets break down the concept of safe harbour?in today’s post!

Defining Safe Harbour:?Safe harbour provisions are designed to simplify compliance and reduce the administrative burden for MNEs.?Under BEPS 2.0, these provisions allow certain low-risk jurisdictions to bypass the full Global Anti-Base Erosion (GloBE) effective tax rate (ETR) calculation.

OECD has introduced the Transitional CbCR Safe Harbor, permanent Safe Harbour and transitional penalty relief regime. This post covers significant details of Transitional CbCR Safe Harbour (other to be covered in separate posts).

Transitional CbCR Safe Harbour: This is a temporary measure designed to ease the initial implementation of the GloBE rules.?It allows MNEs to use simplified calculations to determine their ETR in specific jurisdictions, reducing the need for detailed GloBE calculations during the transition period.

A tested Jurisdiction must pass any one of the three prescribed tests by OECD:

1.???? De minimis test: The jurisdiction’s total CbCR revenue should be less than €10 million, and the CbCR profit (loss) before income tax should be less than €1 million (including a loss).

2.???? Simplified ETR test: The jurisdiction has an ETR that is equal to or greater than the ‘transition rate’ in the jurisdiction for the fiscal year.

3.???? Routine profits test: The tested jurisdiction’s profit or loss before income tax for the jurisdiction is equal to or less than the substance-based income exclusion (SBIE) for constituent entities resident in that jurisdiction under the CbCR, as calculated under the GloBE rules.

Key Takeaways:

• It is Temporary in nature (for specific period)
• It would exist for FY beginning on or before 31 December 2026, but not including a FY that ends after 30 June 2028.
• Transition rate FY 2023 & 2024 : 15%, FY 2025 : 16%, FY 2026: 17%
• It is an ‘OR’ test, rather than an ‘AND’ test.
• Qualifying for a safe harbour does not exempt an MNE Group from complying with the group-wide GloBE requirements such as the requirements to prepare and file a GloBE Information Return (Details to be covered separately) .

While the above-mentioned details are explained precisely, the OECD guidelines explain them in detail!

Have you worked on the Safe Harbor models yet? Feel free to share your thoughts or suggestions and stay tuned for another post due tomorrow! ?

The facts/ information mentioned in the above article stands as per the publications by OECD as on 1st October 2024. Any further developments would require revisiting of the above. The views above are?personal. Any act of copying content/ opinion requires prior approval.

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