Pilíř 2 iniciativy BEPS 2.0. – již od roku 2024

Pillar 2 of BEPS 2.0 - from 2024 already

The implementation of Pillar 2 of BEPS 2.0 has been approved at the EU level. We have informed you about the parameters, the negotiation and approval process in our alerts (e.g. we described the basics of the calculation HERE). In December, the EU directive was approved on the basis of which Pillar 2 will also be implemented in the Czech Republic (more information in our alert HERE).

The introduction of Pillar 2 will result in an unprecedented link between the accounting books kept under the IFRS and the tax calculation under Pillar 2. The rules are extremely complex, full of exceptions and elections and each large Czech group and a local subsidiary of a large foreign group should already be thinking about how to deal with this complex piece of legislation. Time is running out. The Directive should be in force as early as 2024.

We below reflect on 4 selected basic theses that we encounter (and try to refute):

• We (don't) file a CbCR and therefore the rules (don't) apply to us

Yes and no. It is true that the basic threshold for the notification of a Country-by-Country Report (CbCR) also applies to Pillar 2, i.e. the annual consolidated revenues of a multinational enterprise group of companies are at least EUR 750 million. However, Pillar 2 also applies, among others, to large-scale domestic groups and furthermore contains special rules for minority-owned constituent subgroups, joint ventures, investment funds etc. with a lot of exceptions and additional conditions that may lead to unexpected conclusions regarding (non)inclusion in the Pillar 2 rules.

• Our statutory or book effective tax rate is higher than 15%, so we are not affected

Hard to say. The Directive contains its own definition and method of calculating effective tax, both on the numerator (i.e. covered tax) and denominator (i.e. net income) side. Covered tax will e.g. include deferred tax that will be recalculated at a maximum of 15% tax (regardless of the rate used for accounting purposes). Although net income will be based on the IFRS accounting books, the Directive contains a list of items by which profit/loss will need to be adjusted. Some book items may affect the effective tax rate purely because there is a (temporary or permanent) difference between Czech "tax accounting" and IFRS books - some combinations of differences and recalculation of deferred tax may lead to unpleasant consequences. Various deductions, allowances and credits that will affect the amount of tax should be considered separately as well.

• Our foreign head office will deal with this, we don't have to do anything locally

They won't - at least not by themselves. If you have a foreign headquarters, Pillar 2 will be (simplistically and just for you) an exercise where you will need to explain various items that enter the Czech tax base (including any differences between IFRS and Czech profit or loss), and thus, affect the current (and deferred) tax which further affects the covered tax for Pillar 2 calculation.

• We have the ultimate parent company outside the EU, and therefore, the rules do not apply to us

On the contrary. If your ultimate parent company is located outside the EU and such jurisdiction has not implemented rules equivalent to those set out in the Directive or the OECD Model Rules, Pillar 2 will apply at the level of the EU intermediate parent entity, or the rules for undertaxed profits will apply.

Look out for the sequel now. If you have any questions, please contact the author of this article or the EY tax team with whom you regularly work.

Author:

Karel Hronek