The ground-breaking Pillar Two global minimum tax agreement is here and is set to change how taxes are dealt with internationally.
137 countries in the G20/OECD Inclusive Framework on BEPS (‘the Inclusive Framework‘) have signed up to a joint political statement on the agreed components of their ‘two-pillar‘ approach to global tax reform. Pillar Two sets out global minimum tax rules designed to ensure that large multinational businesses pay a minimum effective rate of tax of 15% on profits in all countries.
On 14 March 2022, the OECD/G20 Inclusive Framework on BEPS released further technical guidance on the 15% global minimum tax agreed in October 2021 as part of the two-pillar solution to address the tax challenges arising from the digitalisation of the economy. The GloBE Rules provide a coordinated system to ensure that Multinational Enterprises (MNEs) with revenues above EUR 750 million pay at least a minimum level of tax – 15% – on the income arising in each of the jurisdictions in which they operate.
On December 12, 2022 the EU Council announced that EU Member States had reached an agreement to implement the minimum tax component (Pillar Two) of OECD‘s global international tax reform initiative. According to an EU Council press release, the Committee of Permanent Representatives garnered the required unanimous support and the Ambassadors of EU Member States advised the Council to adopt the Pillar Two directive.
This is a significant development as the EU is considered a first mover. Other countries are likely to follow, possibly including the UK, the UAE, Singapore, Hong Kong, Switzerland, etc. The Pillar Two directive must have been transposed into the EU Member States‘ national law by December 31, 2023.
The OECD/G20 Inclusive Framework on BEPS published the Agreed Administrative Guidance for the Pillar Two GloBE rules on February 02, 2023. Further the Agreed Administrative Guidance is expected to be incorporated into a revised version of the Commentary that will be released later in 2023 and replaces the original version of the Commentary issued in March 2022. This Inclusive Framework will continue to release further Agreed Administrative Guidance on an ongoing basis.
How does Pillar 2 impact tax accounting?
Pillar 2 imposes new calculation and reporting obligations that require businesses to have appropriate systems and processes to identify, gather and process the required data. These calculations will likely differ from existing reporting requirements, and we expect that tax and accounting teams will need to work together closely to scale up reporting and data analytics capabilities.
Additionally, these new calculations will need to be digitally and securely stored and carried forward on a traceable, trackable basis for future year calculations and potential tax authority audits.
Given the Pillar Two implementation across potentially 137 countries, the automatic exchange of data, the A-typical Pillar Two mechanisms, and the timeline for implementation in national laws, there is an urgent need for a standardized, affordable, cloud-based Pillar Two / GloBE software solution.
Pillar Two Software Early Registration Program
Based on a number of interviews with global MNE tax directors, as well as the positive responses to our Pillar Two sample calculator , we’ve learned that Pillar Two is foremost in the minds of most tax professionals operating in the international income tax space.
The reason for this is obvious: Pillar Two requires a solid tax accounting process, and the impact of Pillar Two could already impact the tax reporting for 2023. Now is the time to get your updated processes in place.
Pillar Two implementation is here and imminent. Are you prepared?
Benefit from our Early Registration program; get prepared for the new OECD / EU GloBE regulations with early access to the Pillar Two Module, 25% discount, and more!
How to comply with Pillar 2 guidelines?
With the Pillar 2 implementation what are the first steps that tax professionals need to be aware of and start preparing for?
Attend our webinar, where we explain the first part of the Pillar Two implementation package. Understand the content of the first Pillar Two implementation package and what to expect concerning the administrative guidance in 2023.