Interpreting the SBIE: From Blueprint Ambiguity to Structural Design and Tax Competition

Abstract

Confronted with a global tax system strained by highly mobile profits, the OECD/G20 Inclusive Framework on BEPS introduced the Substance-Based Income Exclusion (SBIE) to reconcile anti-avoidance objectives with continued state-capacity to compete for genuine economic activity. This study examines the interpretative evolution of the SBIE, tracing its development from the multiple plausible structural readings implicit in the 2020 Pillar Two Blueprint to its formal codification in the GloBE Model Rules and subsequent OECD Commentaries. Using a legal-doctrinal methodology, the study reconstructs the alternative structural interpretations inherent in the Blueprint and demonstrates how the GloBE Model Rules resolve this ambiguity by crystallising a single design. Under the final configuration, the SBIE is confined to the calculation of Excess Profit, excluding a fixed return on Payroll and Tangible Assets, while leaving the computation of the Effective Tax Rate unchanged. The study further argues that this structural choice curbs competition for low-substance profits while preserving scope for competition based on real economic activity. At the same time, it identifies an inherent trade-off: the interaction between the SBIE and the Qualified Domestic Minimum Top-up Tax (QDMTT) may incentivise jurisdictions to rely on domestic minimum taxes in order to retain taxing rights within the Pillar Two system.