With the BEPS Pillar 2 Global Anti-Base Erosion (GloBE) Model Rules now released, many multinational groups have been surprised with the level of complexity and data needed to comply with the rules.
These groups will need to understand and implement a detailed compliance process, regardless of whether any top up tax is ultimately payable.
|Top up tax may arise where the GloBE effective tax rate (ETR) for a jurisdiction, as calculated under the rules, is less than the global minimum tax rate of 15 percent. The GloBE ETR calculation based on 'covered taxes' divided by the GloBE Income or Loss. The calculation of 'covered taxes' starts with accounting tax balances, but then applies a number of complicated adjustments and reallocations.|
BEPS 2.0 data and reporting challenges
Key themes to consider from a broader systems and data perspective include:
1. MULTIPLE DATA SOURCES
GloBE calculations will need to rely on a number of different data sources. Whilst there is greater linkage to the accounts than the 2020 blueprint paper, there will still be recourse needed to tax return data, Country-by-Country Report data and asset registers, for example.
The ETR calculation, and in particular the deferred tax aspects of the calculation, use tax balances per the accounts as the starting point but quickly deviate from those with a number of adjustments. One of the starting points for groups looking at their accounting data will be asking the question – do we have the right information and level of granularity in our general ledger and accounting workpapers to identify and track what we need for tax? Where can we source information not included in those workpapers?
2. TRACKING OF GloBE BALANCES
There will need to be mechanisms in place to track various GloBE balances. For example:
- Deferred tax balances will need to be tracked in a more granular level than ever before. Certain deferred tax liabilities will need to be split into those that unwind in 5 years and those that do not. Where this is unknown at the time of initial recognition, these will need to be monitored and adjusted after the 5 year mark if they remain unpaid.
- There are also 16 elections to be made under the rules – some every 5 years, some annual and some once-off. Certain of these elections, as well as parts of the merger and acquisition special rules, require the use of historical carrying values or transferred carrying values. These may differ to the accounting carrying value and will also need to be tracked.
- Under transitional rules, tracking is also needed for certain deferred tax balances to distinguish between transactions that occurred prior to 30 November 2021 and those that occurred after.
3. GloBE CALCULATIONS
The GloBE calculations themselves will need to be thought through carefully. There are new calculations needed for calculating covered taxes, GloBE effective tax rates (ETR), substance-based exclusions and top up tax calculations. However, to make things even more challenging – there are certain triggers requiring an organisation to go back to recalculate the GloBE ETR for past years. Absent a technology solution, this has the potential to be very challenging for compliance teams to reconcile year on year.
The Undertaxed Payment Rule, should it be triggered, will also be very complicated to apply in practice, both in terms of data sourcing across a number of jurisdictions and the allocation mechanisms. Although hopefully the circumstances in which it will apply will be limited.
4. FORECASTING AND SENSITIVITY ANALYSIS
Forecasting and sensitivity analysis will become very complicated. Absent some level of automation, it will be difficult to report to management on the true tax impact of transactions, cash flow modelling and business decisions within a reasonable time frame – particularly with the recasting of deferred tax balances to 15 percent and jurisdictional blending complicating matters.
Determining which elections to make may also require a scenario analysis (in some cases year by year; and for some investment by investment). Most of these elections need to be done on a jurisdiction-by-jurisdiction basis.
Finally, there is the reporting itself. Details of the administrative framework, including safe harbour approaches and GloBE information return details, are expected to be released by the OECD shortly for consultation.
BEPS 2.0 data strategy and implementation planning
Getting the right data and technology strategy for BEPS can save considerable internal resources. A holistic strategy also needs to factor in what tax authorities will expect to see in the future to support positions taken. Is your organisation going to be able to reconcile the multiple reporting obligations now arising, globally and locally? Will your GloBE reporting be able to reconcile to your consolidated financial statements, local financial statements, local tax returns, tax transparency reporting and Country-by-Country Reporting disclosures?
The OECD expects jurisdictions to enact the Model Rules by 2023. This will be a challenge for many jurisdictions to get this through their legislative program in time. However, until there are clear indications otherwise, multinational enterprises will need to plan on the basis of a 2023 start date for these measures.
Whilst there will be a bit of time given before the first GloBE Information Return is due, impact assessments will need to happen much earlier to ensure timely business decisions can be made and accounting disclosures and impacts are correctly reflected. Systems changes to capture and map the right data take time, so data assessment exercises need to take priority in any BEPS 2.0 projects.
KPMG's BEPS 2.0 Rapid Assessment Tool reflects the Model Rules and commentary, and has the ability to ingest information at different levels of data maturity and identify data gaps. A BEPS-ready data assessment can help to identify the data needed in your organisation’s particular circumstances and how it can be sourced. Different levels of data can then feed into impact modelling and scenario planning, ultimately managing the complex compliance requirements. KPMG’s multi-disciplinary Tax Transformation team includes BEPS specialists who can partner with you to build a holistic data strategy and implementation plan.
Draft Model Rules released by the OECD for public consultation covers elements of Pillar 1 of the redesign of international business income tax rules.
The OECD has released draft Pillar 1 Model Rules for public consultation.