The Organization for Economic Cooperation and Development’s (OECD) Base Erosion and Profit Shifting (BEPS) 2.0 initiative will have a significant impact on the global tax landscape. The new tax rules represent a historic shift in international taxation, with more than 140 countries achieving a consensus on a minimum level of tax. Kathy Lim, Partner at KPMG, Global Transfer Pricing Services, and Muriel Narmon, Executive Director at KPMG, Lead for Tax Accounting & Reporting, discuss the implications of the Global Anti-Base Erosion (GloBE) rules (Pillar 2) for large corporations.

Consensus of historical significance

BEPS 2.0 is a response to the increasing digitalization and globalization of businesses. "For the last century, the international tax system has focused on taxing profits where groups have a physical presence," explains Kathy. “With changes in business models, supply chains, and how groups generate revenue in a digitalized world, there is a clear need to update the global tax system.”

“The consensus reached by more than 140 countries is an extremely significant achievement, representing over 95% of global GDP,” says Muriel. “Previously, countries were often in a race to the bottom to attract new investors, using low tax regimes and attractive tax incentives. With the upcoming global minimum tax rules, the playing field for tax optimization is shifting. Companies need to ensure that they have sufficient economic activity and substance in each jurisdiction to justify their tax strategies – now more than ever.”

15% tax - nothing less

“The global minimum tax requires companies with consolidated revenues of €750 million or more to pay a minimum effective tax of 15% in each jurisdiction that they operate in,” says Kathy. “The OECD has estimated that the new rules could result in €150 billion of additional tax revenues worldwide, which could support recovery from the COVID-19 pandemic. Separately, the requirement for companies to pay a minimum tax is also a response to society’s call for companies to demonstrate greater corporate social responsibility and ensure even greater tax transparency.”

“This also means that tax incentives and low tax rates will no longer be the main driver for where companies choose to operate or invest in,” says Muriel. “Countries will have to seek other ways to attract investors.”

Scope, review and assess the impact

Scoping, risk assessment, data discovery, and impact assessments are critical first steps. “Companies should start with scoping: reviewing the group structure, assessing how the rules will apply, identifying specific exceptions or rules that will need to be considered, and importantly, considering whether and how the proposed safe harbor may provide some relief in the early years of the new rules,” says Kathy. “From there, companies can identify the data needs and sources, then develop data management procedures to guide the process.”

“By conducting an impact assessment, companies can verify the data gaps,” says Muriel. “It also helps them determine if changes to their systems and processes are needed to streamline the reporting, collection, and validation of data. It allows them to identify the most effective compliance process for the group, and consider how they can automate the data collection process as much as possible to perform the necessary Pillar 2 calculations – preferably through a well-designed tool that supports the process from end to end.”


Re-thinking business models

“After assessing the impact of the global minimum tax, this is an opportunity for groups to re-evaluate their business models and structures to reduce their tax risks and exposure,” says Kathy. “In this regard, companies should also be aware that public opinion demands transparency and fair taxation. Business models must reflect business needs and reality.  Companies cannot afford to let tax efficiency be the sole driver of their business direction.”

Start preparing today

As multinationals face the challenge of addressing Pillar 2, KPMG’s multi-disciplinary approach can help companies interpret the rules and assess the potential business and financial impacts of the global minimum tax. KPMG’s approach and solution helps groups to ensure that the right data, systems, and processes are in place to efficiently meet the new compliance obligations, while reducing tax risk.

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