BEPS 2.0: The global minimum tax rate

Following the BEPS (Base Erosion and Profit Shifting) initiative, the OECD is now putting the final touches to the follow-up project, BEPS 2.0. The measures for redistribution of taxation rights are in Pillar 1 and were decided in 2021. These affect multinational businesses with an annual turnover of over EUR 20 billion – which is a relatively small number of companies. 

Things are different when it comes to Pillar 2. The aim of this is the introduction of a global minimum tax rate. At the end of 2021, the OECD countries agreed on the project to apply a minimum tax rate to business entities with a consolidated group turnover of EUR 750 million or above.

Following the adoption of the BEPS measures, countries are now required to create the legal bases for it. The European Union is also discussing its implementation (as of June 2022). Although the EU Directive is not yet in place, it appears likely that the measures that have been announced will require extensive preparation by companies. That is why businesses should start acting now to create the relevant processes and structures.

Under the OECD and EU plans, companies with consolidated group earnings of EUR 750 million or more are required to report what is called an Effective Tax Rate (ETR). If this is less than 15 percent, then a “top-up tax” must be applied. It should be noted that the ETR may be below 15 percent even when the tax rate in the relevant country is above this threshold. Independently of the tax itself, copious documentation and declaration requirements are also being imposed on international companies.

There is already a challenge in having the data available and collecting it. Many data items that are relevant under the new rules are not currently included in other documents such as the Country-by-Country Reporting rules, or in commercial balance sheets. New processes and wide-ranging adjustments to the data in enterprise accounting systems are necessary in order to collect these efficiently. This particularly affects the in-country companies of a group. Success can only be achieved through close, international collaboration between the tax and accounting functions. Practice has shown that especially medium-sized and family firms that are globally active have ground to make up, and will first need to create these structures. The time available for doing this is short, which is why implementation should be initiated without delay.

The global minimum tax rate will likely come into effect in EU countries from 2024.

KPMG has developed a project methodology that takes into account the company’s specific tax, accounting and IT landscape.

To develop a tailored BEPS 2.0 strategy, we then proceed as follows:

1. check the relevance of Pillar 1 and Pillar 2 for your company, looking at company-specific features,
2. analyse impact and assess initial risk using a variety of (high-level) simulation and modelling tools,
3. analyse the effects of new compliance, reporting and payment requirements,
4. identify the necessary system changes and provide assistance with their implementation – using an in-house KPMG solution, or amending your existing tax reporting systems.

Projects in the BEPS 2.0 space generally require bespoke solutions, because every company is different. Our team of experts from the areas of accounting, IT and international tax tackle the project on a multi-disciplinary basis, keeping a steady focus on the requirements of the year-end audit. By developing our own technology and working in collaboration with leading software vendors, we can assist you with innovative solutions during your project. We take the approach of docking onto your existing infrastructure, so that in most cases no extensive restructuring of you existing IT system is necessary. You will also benefit from our own international network. We work closely together with this, in order to meet the requirements for the countries that are relevant for you. 

You can find more information here:

• KPMG response to the Inclusive Framework BEPS announcement made on 20 December 2021 (English)
• KPMG response to the Inclusive Framework BEPS Agreement – 14 March 2022 (English)
• EURO Tax Flash from KPMG’s EU Centre on EU Directive to implement Pillar Two in the EU (English)
• BEPS 2.0 – What you need to know (English) 
  
• Top 20 questions and answers on new GloBE Model Rules Commentary (English) 
• BEPS 2.0 & Digital Newsletter – Issue 05/2022

We can assist you in the development of your BEPS strategy. Get in touch.