Pillar Two Support
As part of the OECD BEPS-Project, the OECD has introduced the Two-Pillar Solution as a way of updating key elements of the International Tax System, as the current tax systems are unable to cope with the globalised and digitised economy. The specific goal of Pillar Two, also known as the Global Anti-Base Erosion Rules (GloBE), is to reduce tax competition and profit shifting. GloBE will implement a minimum effective tax rate (ETR) of 15% on Corporate Income to ensure that MNEs pay a minimum amount of tax in all the countries where they operate.
The GloBE rules provide a system in which a so-called top-up tax is imposed on the profits whenever the ETR in the respective countries is below the minimum ETR of 15%. The GloBE rules apply (threshold) to MNEs with a yearly consolidated revenue of EUR 750 million in at least two of the four years preceding the relevant fiscal year. The revenue is calculated on a jurisdictional country-by-country basis and must be proven by financial statements. The top-up tax is primarily imposed by the Income Inclusion Rule (IIR), which dictates that the jurisdiction of the Ultimate Parent Entity must impose the top-up tax. The second rule, the Under Taxed Payments Rule, is the backstop rule for the IIR and applies only if the IIR is not imposed.
Pillar Two adds further complexity to the already substantial tax compliance burden of MNEs. For each country in which an MNE operates, it has to calculate whether or not the MNE’s ETR in the respective country is below the 15% minimum. If the ETR is below the 15% minimum, the MNE has to apply the GloBE rules and impose the top-up tax. This requires an extensive amount of information and can be time consuming.
We at Quantera Global can help you comply with the GloBE rules, perform a risk analysis and/or provide advice. Our main way of providing support is through the software solution Coperitas.
A pitfall seems to be to manually, locally, and with a tax mind, gather, assess and readapt all potential relevant data. Even with external help this may soon prove to be extremely cumbersome (annually).
Our solution is building on your current CbCr process to avoid this. Probably all Pillar two obliged MNEs will have built experience on compiling and sharing CbCr data. This process typically already provides sufficient information for 80-90% of what is required.
With that data and the related analyses we are building into Coperitas you will have an automated solution that covers most of your Pillar two work and highlights the areas to focus on.
These focus areas will differ per MNE as well as the related data required. A process can be set-up via a semi-automated Excel download from your current systems. This to avoid having to set-up connections with your ERP-system for example and requiring IT support. This data can be uploaded in Coperitas and put automatically in the right places to make the required calculations. Surrounding text blocks can be added in a flexible and consistent manner for internal and external reporting.
Those MNEs that want to jump on this train with us will receive a special price, be in control and prepared in time.