The OECD’s Two-Pillar Solution, known colloquially as BEPS 2.0, is a redesign of the international tax system. The biggest change is the introduction of a global minimum tax of 15 percent for large multinational groups.
Over 135 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 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. Substantial progress has been made in relation to both pillars since this time. Australia has announced that the Pillar Two rules, including a domestic minimum tax of 15 percent, will apply for income years starting on or after 1 January 2024. New Pillar Two accounting disclosures can apply for earlier periods.
Pillar 1
Reallocation of taxing rights to market jurisdictions
Amount A of Pillar One seeks to reallocate taxing rights for 25 percent of residual profits to market/end-user jurisdictions for over 100 multinational groups globally. It applies to groups with global revenue of EUR 20 billion or more, so limited Australian groups are in scope.
Amount B of Pillar One applies to a broader set of multinational groups. It sets a globally agreed, standardised remuneration return for certain routine market/distribution activities in a market/end-user country.
Pillar 2
Global minimum tax
The Pillar Two Global Anti-Base Erosion (GloBE) 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). The GloBE model rules and guidance have been released by the OECD and are in the process of being legislated in a number of countries.
The Pillar Two Subject to Tax Rule (STTR) permits source jurisdictions to withhold tax on certain related party payments when such payments are not subjected to a minimum tax rate of 9 percent.
| 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 2024 in many countries, there is a limited period of time to prepare for the changes. |
The BEPS 2.0 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 (BEPS 1.0). 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.
Innovating to lead the way
KPMG has delivered the most comprehensive BEPS projects to date, underpinned by our tested technology solution, which we evolve from learnings and insights from delivering work for Australia’s largest multinationals.
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 impact assessment 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.
Find out more
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