---

We commend the energetic work by the OECD on the technical issues on Pillar Two, following the Statement agreed by the OECD/G20 Inclusive Framework (IF) in October 2021, and we appreciate the opportunity to submit our comments.

The Commentary on the GloBE Rules (hereinafter "Commentary") and the illustrative examples on the Model GloBE Rules (December 2021) provide a strong platform for implementation in 2023. On the other hand, we recognise that there are still issues that must be resolved to strike an appropriate balance between proper administration by tax authorities and compliance costs to be borne by taxpayers.

As the representative of Japanese businesses, we submit comments on the matters that should be clarified in the Implementation Framework with a focus on Chapter 8 (Administration) of the Commentary. Our comments emphasise the need for simplicity in rule design and consistency of administration by tax authorities to avoid undermining the predictability of taxpayers' existing practices. We also ask that the conditions for Qualified IIR and Qualified Domestic Minimum Top-up Tax (QDMTT) are released in a timely manner.

We hope that our comments are considered in the development of the Implementation Framework.

1. Filing obligation (Chapter 8)

1.1 Constituent Entity that should file the GloBE Information Return

In principle, each Constituent Entity of an MNE Group is required to prepare and file the GloBE Information Return with its tax administration (paragraph 5). However, information on the calculation of the Effective Tax Rate (ETR) must be included in the GloBE Information Return for each jurisdiction (paragraphs 17-20). It is more natural for the Ultimate Parent Entity (UPE) to ascertain and calculate this information. Based on the top-down approach, it is also reasonable to interpret that the right to inquire and inspect is first and foremost held by a jurisdiction where the UPE is located. Furthermore, when each Constituent Entity files the GloBE Information Return, there should be practical concerns related to delays in filing and inconsistency in the contents of the GloBE Information Returns. Accordingly, the GloBE Information Return should be filed by the UPE or a Designated Filing Entity with the tax administration located in the jurisdiction where such entity is located, which should ensure that the information in the GloBE Information Return is consistent across the MNE Group and avoid delays in filing and administration issues. At the same time, the conclusion of a Qualifying Competent Authority Agreement between all jurisdictions subject to the GloBE Rules should be mandatory to ensure confidentiality of information provided by the tax authority in the jurisdiction where the UPE or a Designated Filing Entity is located to the authorities in the other jurisdictions where each Constituent Entity is located. The GloBE Information Return should be provided only to jurisdictions in which Constituent Entities are located, and the information should not be used for any purpose other than the implementation of the GloBE Rules.

Where the GloBE Information Return is filed only by the UPE or a Designated Filing Entity, the contact point for enquiries from tax authorities should be also centralised to such entities via the jurisdiction where the entities are located. The tax authorities making enquiries should be limited to those with top-up taxing rights under Qualified IIR.

Furthermore, the required information concerning the UPE submitting the GloBE Information Return should be notified not by each Constituent Entity to a tax authority in each jurisdiction in which it is located (paragraph 12), but by the UPE to authorities in jurisdictions in which Constituent Entities are located via the authority of the UPE jurisdiction based on a Qualifying Competent Authority Agreement.

1.2 Information to be included in the GloBE Information Return

The information to be provided when a standard template is developed (paragraph13) should be standardised to help ensure tax certainty. The information should be kept to a minimum. Indicating all the details of the adjustment types and adjustment amounts under Article 3.2 (paragraph 17) would result in an enormous amount of information. In addition, it is necessary to clarify the cut-off date of quantitative information on each Constituent Entity for the calculation of ETR in the GloBE Information Return while also taking into account the schedule of audit procedures and tax filings.

While it has not been decided whether a diagram and/or list of the overall corporate structure of the MNE Group is required (paragraph 15), some MNE Groups may have hundreds or thousands of Constituent Entities. The practical burden of indicating capital relationships in a diagram is too burdensome to prepare within a limited period. Only a list should be provided regardless of the size of the MNE Group.

Furthermore, although local tax authorities may request supplementary information in accordance with domestic legislation (paragraph 13), this should be strictly avoided as it would lead to confusion in practice, as can be seen in the Master File for transfer pricing documentation. The OECD should monitor administration by each tax authority.

With regard to the identification of Excluded Entities when they form part of a MNE Group (paragraph 23), if the required information is submitted in one Reporting Fiscal Year, it should not be further required to be filed in the following years to avoid practical complications.

Moreover, the retention period for documents relating to the information provided in the GloBE Information Return should comply with the laws and regulations of the jurisdiction in which the UPE is located.

1.3 The deadline for filing the GloBE Information Return

Except for the Transition Year, the timing for filing the GloBE Information Return is within 15 months after the last day of the Reporting Fiscal Year (paragraph 25). However, given the deadline for the submission of the Country-by-Country Report (CbCR) (within one year after the last day of the fiscal year of the UPE) and the application of the CbCR ETR safe harbour, information for the GloBE Information Return and adjustments required under the safe harbour may be identified after the CbCR is submitted. In addition, in the months preceding the deadline for the submission of the GloBE Information Return, settlement of account and tax returns in jurisdictions may be concentrated at the same time. In some jurisdictions, there are also circumstances where it takes time to compile the CFC taxes to be pushed down to relevant jurisdictions. For these reasons, it would be difficult to collect and scrutinise the required information and prepare the GloBE Information Return in a few limited months. The deadline for filing of the GloBE Information Return should be ensured to be more than 15 months (e.g., 18 months or more) after the Transition Year until the stability of practice can be confirmed.

1.4 Operations after the submission of the GloBE Information Return

Although the rules for modifying the GloBE Information Return are left to the legislative or regulatory framework of each jurisdiction (paragraph 27), if treatment is not unified, the predictability of MNE Groups' practices will be undermined, which will affect tax certainty. Guidelines on the modification of the GloBE Information Return should be presented prior to the domestic legislation in each jurisdiction.

In addition, penalties and sanctions regarding the GloBE Information Return such as delinquent taxes, interests, and additional taxes should not be imposed for a reasonable period until practices have stabilised.

2. GloBE Safe Harbours (Chapter 8)

2.1 Simplification options to be introduced

To minimise practical burdens concerning Pillar Two, it is crucial to ensure that multiple simplification options are introduced.

We consider that the most conductive simplification option is to provide tax administrative guidance, in particular the white list. For example, if a jurisdiction has a statutory effective tax rate that is significantly above 15%, or if a jurisdiction has adopted QDMTT, a jurisdictional ETR calculation should not be required in the first place.

A safe harbour based on the information in the CbCR should be designed that is simple and has minimal adjustment items to avoid later disputes.

Furthermore, if the jurisdictions subject to ETR calculations are narrowed by adopting the above measures, it would be possible for an MNE Group to calculate its average ETR for multiple fiscal years instead of a single year. Where the average ETR of a jurisdiction exceeds a certain threshold, the MNE Group should then be exempted from calculating the ETR for that jurisdiction for the next several years.

2.2 Challenges to the application of GloBE Safe Harbours by tax authorities

If safe harbours are not adopted and ETR calculations are required for each jurisdiction, the predictability of taxpayers' practices would be severely compromised and the administrative burden would be excessive. It is essential that the processes covering tax authority challenges (paragraphs 35-39) are designed in a manner that takes full account of taxpayer practice.

First, to avoid frequent challenges, it should be mandatory to specify the reasons for any challenge. Tax authorities that can raise challenges should be limited to those with top-up taxing rights under Qualified IIR (paragraph 35).

Secondly, the period during which tax authorities may challenge the use of a GloBE safe harbour should begin upon receipt of the GloBE Information Return by the tax authorities (paragraph 36). Based on the 36 month-period, the challenged Constituent Entity may have already left the MNE Group. Therefore, the length of the period should be shortened to a reasonable number of months.

Furthermore, a resolution process should be agreed. For example, allowing a Liable Constituent Entity (or Entities) to file an objection to a challenge by a tax authority(ies) if the Liable Constituent Entity (or Entities) fails to demonstrate the eligibility of the GloBE safe harbour within six months (paragraphs 38 and 39). In cases where the safe harbour is not finally applied, retrospective recalculation to prior fiscal years should not be required unless an intention to use the GloBE safe harbour in an arbitrary manner is confirmed.

3. Other material issues

3.1 Charging provisions (Chapter 2)

Although the allocation among the Constituent Entities within a UTPR jurisdiction is to be addressed under that UTPR Jurisdiction's domestic law (paragraph 51), if allocation methods differ between jurisdictions, this could lead to increasing compliance costs for MNE Groups. Therefore, consideration should be given to developing common guidelines on the allocation method for UTPR top-up taxes prior to domestic legislation in each jurisdiction.

3.2 Computation of GloBE Income or loss (Chapter 3)

First, any covered taxes in jurisdictions subject to the GloBE Rules should be listed by the OECD/IF while considering the administrative burdens of MNE Groups when preparing the GloBE Information Returns.

Second, more detailed guidance should be provided that explains how to make adjustments due to changes in accounting principles or policies (paragraph 82), including practical illustrations relating to specific adjustments.

Furthermore, in cases where the existence of a Permanent Establishment (PE) is disputed, such as when a tax authority deems that a PE should be recognised in a jurisdiction despite not being recognised or agreed by the MNE Group, or when a PE is exempt from taxation, it would be difficult to prepare financial accounting reports that relate to the PE. Remedies should be provided (paragraph 190) to address this matter. For example, guidance should be provided on how deemed profits on income attributable to a PE should be reflected in the financial statements of the parent entity rather than in separate financial statements.

3.3 Computation of Adjusted Covered Taxes (Chapter 4, paragraph 58)

Where a parent entity with losses has included CFC income, deemed CFC taxes should be pushed down to the subsidiary jurisdictions. Specific examples should be clarified in the illustrative examples.

The fiscal years in which CFC taxes are pushed down to subsidiary jurisdictions should be clarified. In some jurisdictions, it may be practically difficult to prepare the GloBE Information Return within a limited period if the CFC taxes are pushed down to the fiscal year in which the CFC income arises.

---