KPMG report: Employee data reporting under Pillar Two

Since 2016, multinational enterprises (MNEs) have been required to report the number of fulltime equivalent employees in each jurisdiction where they operate in their country-by-country (CbC) reports. Read TaxNewsFlash

To date, CbC reports have been informational returns, used by tax administrations for high-level assessment of profit-shifting risks, with no direct link to Pillar Two tax calculations. With the commencement of the Pillar Two rules, correct CbC reporting takes on a new importance because this data will be used to determine whether an MNE qualifies for relief from additional tax or reporting in a specific jurisdiction under transitional safe harbor calculations provided for in the global anti-base erosion (GloBE) rules.

If no safe harbor applies in a jurisdiction, a full GloBE tax calculation must be performed and reported. The substance-based income exclusion (SBIE) is a carveout from the GloBE tax calculation based on a markup on payroll expenses and tangible assets in each jurisdiction. The amount of payroll costs included in the SBIE directly reduces excess profits and hence the amount of any additional top-up tax an MNE may be required to pay. Finally, the Pillar Two rules provide for a special election for stock-based compensation that may beneficially affect an MNE’s minimum tax calculation. Thus, accurate data on employee numbers, employee locations, and employee costs are critical for compliance with Pillar Two and avoiding the risk of double taxation.

Read a July 2024 report* prepared by KPMG LLP tax professionals that discusses how correctly reporting employee numbers, locations, and costs will benefit multinational enterprises under Pillar Two.

* This article originally appeared in Tax Notes International (July 8, 2024) and is provided with permission.