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. Australia has released draft legislation that implements the Pillar Two rules, including a domestic minimum top-up tax, 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 have been 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. Now that many countries have final or draft law implementing the Pillar Two rules – including Australia – multinational businesses have limited time to prepare for Pillar Two |
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.
How KPMG can help with BEPS Pillar Two implementation
BEPS 2.0 impact assessment and ongoing compliance
- Identify and categorise in-scope entities.
- Assess eligibility for safe harbours to reduce compliance in early years.
- Model preliminary cash tax impacts and determine 'at risk' jurisdictions through high-level effective tax rates (ETR) and top-up tax calculations including impact on future forecasts.
- Prepare for new financial statement disclosures in line with updated IFRS requirements. Further information is available here.
BEPS 2.0 data gap analysis
- Identify data gaps, match to existing sources, and prepare data gap resolution plan.
- Optimise tax engine implementations and ERP upgrades.
BEPS 2.0 implementation roadmap
- Develop initial project plan, resourcing, operating model and multi-year budget for building new tax processes.
- Build multi-phase roadmap with a focus on critical data feeds for BEPS compliance planning and reporting.
- Review country-by-country data quality and processes for use in safe harbours.
- Impact of Pillar Two on new business and M&A.
Find out more about BEPS 2.0
| KPMG’s BEPS specialists have a range of comprehensive project plans and data-driven technology solutions to guide you through Pillar Two implementation. Get in touch. |
