137 out of 141 member jurisdictions of the OECD/G20 Inclusive Framework (IF) on base erosion and profit shifting (BEPS) – representing more than 90 percent of global GDP – have now signed up to the BEPS 2.0 initiative.
On 8 October 2021, the IF approved an eight-page statement finalising key aspects of a framework for reforming the international tax system. Australia was a signatory to the measures.
Reallocation of taxing rights to market jurisdictions
Pillar One seeks to reallocate taxing rights for 25 percent of residual profits to market/end-user jurisdictions, for over 100 multinational groups globally (global revenue of EUR 20 billion or more is required, so limited Australian groups in scope).
Global minimum tax
Pillar Two rules subject thousands of multinational groups around the world to a global minimum tax of 15 percent (groups with global revenue of EUR 750 million or more are in scope).
|Together, the two pillars reflect one of the most significant reforms to the international tax system in over 100 years. With an expected start date of 2023, there is a limited period of time to prepare for the changes.|
Known colloquially as BEPS 2.0, this package follows on from the OECD’s 2015 BEPS program of international tax reform to deal with profit shifting, cross border tax arbitrage and tax transparency. Many authorities believed that the BEPS 1.0 program did not adequately address the challenges of the digitalisation of the economy and started to impose unilateral tax measures to deal with the issue.
The purpose of the BEPS 2.0 project is to move towards a consensus position to help avoid misaligned unilateral efforts and double taxation. In addition, through the global minimum tax rules, it also seeks to address some of the perceived gaps in the way BEPS 1.0 deals with base erosion and stop the 'race to the bottom' on company tax rate competition globally. Model rules for Pillar Two were released on 20 December 2021.
How KPMG can help
Impact assessment and ongoing compliance
- KPMG can help organisations understand, evaluate and communicate appropriate responses to BEPS 2.0.
- Customisable offering with KPMG’s BEPS 2.0 Modelling tool. High-level or detailed analysis.
- Structuring considerations for changes to group, capital and / or intangible structure.
- Identify data and related issues, systems changes needed.
- Ongoing compliance as a technology enabled managed service.
Accounting and assurance support
- The accounting interactions with the Pillar Two rules, both in terms of calculating effective tax rates and the flow on accounting implications of any top up tax are significant.
- For those in scope of Pillar One, the accounting impacts of new tax rights will potentially be even more complicated.
- We can help your organisation navigate this, either as a stand-alone engagement, an extended external audit scope or as an internal audit assurance review.
Legal entity simplification
- If the group structure and value chain are no longer appropriate, KPMG can assist with restructuring. Our tax and legal teams are experienced at working together to help groups restructure.
- Collapsing complex holding structures may simplify reporting, providing cost savings and reducing tax risk for the corporate group.
- Factors to consider include the location of risk management and control functions, the group’s principal markets, and tax system characteristics.
Communication with stakeholders
- Preparing a board paper setting out expected impacts of BEPS 2.0.
- Assist engagement with C-Suite/audit committee.
- Tax and legal support with:
- Fast-moving international tax and transfer pricing issues
- DST and other taxes, withholding tax
- IP and R&D considerations.