After the BEPS (base erosion and profit shifting) initiative, the OECD is now putting the final touches to its follow-up project, BEPS 2.0. The measures for the redistribution of taxation rights are in Pillar 1. These would affect multinational companies with an annual turnover of over EUR 20 billion – which is a relatively small number of companies. The measures remain to be implemented.
Global minimum taxation for companies with a turnover of 750 million euros or more
The situation is different with Pillar 2. The subject here is the introduction of a global minimum tax. At the end of 2021, the OECD countries agreed to subject companies with a consolidated group turnover of 750 million euros or more to an internationally applicable minimum tax.
Following the resolution of the BEPS measures, the states are now called upon to create a legal basis. A corresponding political agreement was reached in the EU in mid-December 2022, and corresponding legislative projects have also been initiated in other countries. The upcoming legislative changes require intensive preparations on the part of companies. Therefore, companies should act now and create appropriate processes and structures.
Comprehensive documentation and declaration obligations as a result of Pillar 2
Under the OECD and EU plans, companies with consolidated group earnings of EUR 750 million or more are required to report what is called an effective tax rate (ETR) for each country. If this is less than 15 percent, then a “top-up tax” must be applied. It should be noted that the ETR may be below 15 percent even when the tax rate in the relevant country is above this threshold. Irrespective of taxation, copious documentation and declaration requirements are also being imposed on international companies.
There is already a challenge in having the data available and collecting it. Many data items that are relevant under the new rules are not currently included in other documents such as the country-by-country reporting, or in commercial balance sheets. New processes and wide-ranging adjustments to the data in enterprise accounting systems are necessary in order to collect these efficiently. This particularly affects the in-country companies of a group. Success can only be achieved through close, international collaboration between the tax and accounting functions. Practice has shown that especially medium-sized and family firms that are globally active have ground to make up, and will first need to create these structures. The time available for doing this is short, which is why implementation should be initiated without delay.
The global minimum tax rate will come into effect in EU countries from 2024.
Dr. Andreas Ball
Partner, Corporate Tax Services, Tax Lead of Branch Office
KPMG AG Wirtschaftsprüfungsgesellschaft
Claus Jochimsen-von Gfug
Partner, International Transaction Tax
KPMG AG Wirtschaftsprüfungsgesellschaft
How we support you in the development of a tailored BEPS 2.0 strategy
KPMG has developed a project methodology that takes into account the company’s specific tax, accounting and IT landscape. Unlike in many tax projects, the efficient implementation of the Pillar 2 requirements demands special accounting know-how (particularly IFRS). At KPMG, we have the necessary expertise – the appropriate experts are a fundamental part of our project teams.
To develop a tailored BEPS 2.0 strategy, we then proceed as follows:
Bei der Entwicklung einer individuellen BEPS-2.0-Strategie gehen wir folgendermaßen vor:
01
Examination of the relevance of Pillar 2 (as well as Pillar 1, if applicable) for your company, taking into account company-specific features
02
Group analysis in relation to the company types relevant for Pillar 2 (in particular joint ventures, partially-owned parent entities, etc.) using our KPMG Group Analyzer.
03
Analysis of the relevance and availability of data for the necessary calculations and development of measures to improve availability or granularity using our KPMG Data Source List.
04
If required, calculation for pilot countries or the entire group using our KPMG BEPS 2.0 Calculation Engine (can also include Pillar 1 and the DST)
05
Identification of necessary system and process adjustments
06
Selection of suitable technology involving our platform KPMG Digital Gateway as well as suitable approaches to BEPS 2.0 Pillar 2 of all relevant third-party providers
07
Embedding the processes into the tax compliance management system including training of employees, adaptation of technical instructions (accounting, tax and IT) and process descriptions
08
Optional complementary support through our KPMG Managed Services approach as well as coverage of more extensive aspects such as structuring measures, use of our KPMG Pillar 2 hotline, etc.
Individual teams for your individual project
Projects in the BEPS 2.0 environment usually require individual solutions, because every company is different. Our team of experts from the areas of accounting, IT and international tax approaches the projects in an interdisciplinary manner and always keeps the requirements of the audit in mind. By using our Pillar 2 solutions and cooperating with renowned third-party providers, we support your project with innovative solutions tailored to your needs. In doing so, we dock onto your existing infrastructure - the conversion of your existing IT system is usually not necessary. You also benefit from our international network. We work closely with this network to meet the requirements of the countries relevant to you.
You can find more information here:
- KPMG response to the Inclusive Framework BEPS announcement made on 20 December 2021
- KPMG response to the Inclusive Framework BEPS Agreement – 14 March 2022
- EURO Tax Flash from KPMG’s EU Centre on EU Directive to implement Pillar Two in the EU
- BEPS 2.0 – What you need to know
- Top 20 questions and answers on new GloBE Model Rules Commentary
