Navigating BEPS 2.0 and increasing tax administration requirements

The value in a coordinated approach – PART 2


In our previous article, we provided an overview of how the enaction of Pillar Two into law marks a significant change in the international tax landscape. We also offered insight into how asset managers can better determine whether they are in or out-of-scope of the new regulations.

What is next for Pillar Two?

As aforementioned, the key Pillar Two question for asset managers is – am I in-scope? Unfortunately, there is no easy answer and further analysis will be required.

There will likely be some groups where the answer may not be readily apparent – either because their revenue is close to the EUR 750 million threshold, or because accounting standards or the Pillar Two rules create judgement calls. For these groups, there may be benefit in an external review.

The Pillar Two rules are new and have been drafted at speed to potentially apply in over 140 jurisdictions. As such, the OECD is seeking to clarify their application in certain fact patterns – as the Administrative Guidance demonstrates – and may be willing to issue further guidance to address where this is unclear. This means groups will also need to continue monitoring further clarification to the GloBE rules.

The OECD has also stated that for a transition period (which for most groups will cover the periods 2024, 2025 and 2026), penalties should not be applied where a group has taken “reasonable measures” to ensure they have correctly applied the Pillar Two rules.

What constitutes “reasonable measures” will be interpreted by each jurisdictions’ existing rules and practices, but an external review may be a good starting point. With the impending start date of 1 January 2024 for some groups, KPMG professionals are assisting asset managers in performing Pillar Two analysis.

A coordinated approach to tax reporting

Similar to the implementation of FATCA, CRS, CbCR and the ESR – Pillar Two will require managers to perform an initial analysis to determine whether their group is in-scope.

Policies and procedures should then be drawn up to ensure a consistent approach to future compliance with the rules. Where any subsequent reporting is required, consideration should be given to the practical approach and appropriate resource.

This is where taking a coordinated approach to tax reporting should play a part in discussions at group level. Much of the data being reported under Pillar Two will be similar to that under CbCR. Therefore, efficiencies can be achieved by consolidating where relevant data is stored – making it easier to access.

Similarly, groups are experiencing challenges in efficiently tracking the tax reporting requirements across multiple jurisdictions, alongside multiple deadlines throughout the financial year.

How we can help

Experts at KPMG recognise that the challenge of an increasing amount of reporting requirements for MNE groups across multiple jurisdictions – combined with multiple data systems that often don’t have the capability to interact with each other – is making it difficult for tax and finance functions to comply.

To help resolve this, we recently rolled out the Digital Gateway, which provides a platform to clients looking to consolidate and simplify both data exchange and monitoring of compliance obligations. Clients get the benefit of a central engagement team, while having access to specialist teams in the relevant jurisdictions they operate in through the KPMG Member Firm network.

The Digital Gateway enables easy upload of bulk raw data, which can be extracted and formatted into the appropriate reporting framework. With a two-way dashboard, it allows both client and adviser to see the live status of all engagements. Find out more by contacting Matthew Thomas.