BEPS 2.0 rules dramatically change the international tax landscape, potentially bringing reporting and compliance challenges to every industry.
Being prepared for global minimum taxes
MNEs need to keep a close eye on developments in relevant jurisdictions as they implement global minimum tax rules into their domestic laws. Most large organizations are only at the start of their global minimum tax journey. Organizations will need to find ways to calculate their new taxes, evaluate the impact on their financial statements, and report to the relevant tax authorities around the world. They will also need to adapt their internal processes and systems to manage the new computations and data, to calculate their global minimum tax liabilities and satisfy reporting obligations.
Government tax policymakers around the world are collaborating on proposals for significant changes to international tax rules in light of the globalization and digitalization of the economy. The G20/OECD project on addressing the taxation of digital economy began in 2019, building on the final reports issued in 2015 in the earlier project on BEPS.
The current project, referred to as BEPS 2.0, has two elements:
- Pillar One on new nexus and profit allocation rules with the objective of assigning a greater share of taxing rights over global business income to market countries, and
- Pillar Two rules on new global minimum tax, approved in December 2021 by 141 jurisdictions participating in the BEPS 2.0 project.
The Pillar Two Model Rules provide for a global minimum tax of 15% applicable to multinational enterprise (MNE) groups with a global turnover of €750 million or more.
What EY can do for you
EY’s integrated global team of local and international tax, tax compliance, and tax technology professionals can help you navigate the complex rules and assess potential impacts. EY teams can also work with you to develop a robust, actionable plan to be ready when the rules are enacted and effective.
End-to-end support for a major tax challenge
Businesses affected by Pillar Two may have already started to assess the impact on their future effective tax rates (ETR), but this is just the beginning. Here is a snapshot of the four steps in the path toward managing global minimum taxes – most organizations are only at step one.
Attached is EY's monthly report with brief summaries of the latest activity in the OECD Base Erosion and Profit Shifting (BEPS) project as well as country specific legislative and administrative activity, including global and regional policy trends related to the global focus on BEPS.
In this edition, the following countries/organizations are discussed: OECD, European Union, Belize, Bulgaria, Cameroon, Canada, Cyprus, Czech Republic, Denmark, Finland, Guernsey, Ireland, Isle of Man, Japan, Jersey, Kenya, Luxembourg, New Zealand, Oman, Senegal, Thailand and the United Arab Emirates.
Developing a bespoke action plan
Once a multinational organization conducts a high-level impact assessment, an actionable plan for global minimum taxes in terms of compliance and management will need to be established. But as the clock is ticking, any challenges should be diagnosed as early as possible, so that they can be resolved before implementation.
Implementing the plan
Being prepared for Pillar Two will require significant cross-functional coordination involving tax, accounting, legal, systems/IT, and business stakeholders.
The complexity around global minimum tax rules can be an overwhelming proposition for some, and a major challenge for all. By working with EY teams, your organization can manage this complexity and be compliant with applicable rules, balancing cost, service, tax controversy, and tax risk.
On 14 March 2022, the Organisation for Economic Co-operation and Development (OECD) released the Commentary to the Pillar Two Model Rules (the Commentary (pdf)) as agreed by the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS). The Pillar Two Model Rules,1 released on 20 December 2021, define the scope and key mechanics for the Pillar Two system of global minimum tax rules, which includes the Income Inclusion Rule (IIR) and the Under Taxed Payments Rule (UTPR), referred to collectively as the “GloBE rules.”
The Commentary references the role of the Model Rules and the Commentary in the context of the GloBE rules’ status as a Common Approach, noting the need for consistency in the implementation and administration of the rules to avoid the risk of double or over-taxation. The Commentary provides detailed technical guidance on the operation and intended outcomes of the Model Rules and clarifies the meaning of certain terms. It also illustrates the application of the rules to various fact patterns. Together with the Commentary, the OECD also published a separate document with illustrative examples of the application of the Model Rules (the Examples document (pdf)). In addition, the Commentary identifies various matters throughout the Model Rules where consideration is being given to developing further guidance that would become part of the GloBE Implementation Framework.
On the same date, the OECD also announced a public consultation in connection with the work to be done next to develop the GloBE Implementation Framework addressing administration, compliance and coordination matters related to Pillar Two (the public consultation). The Inclusive Framework members are seeking public input on the issues that should be addressed as part of this work.
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