The OECD’s Base Erosion and Profit Shifting Project (BEPS) aims to secure and sustain the international tax system and increase tax equity among traditional and digital businesses. The rules are currently still being developed and it is difficult to predict the outcome of that process. However, whatever the outcomes of the programme and the concrete proposals on the reallocation of taxing rights and global anti-base erosion will be, international businesses in all industries that meet the respective thresholds are likely to be affected. Are you prepared?
This page provides an overview about BEPS 2.0 and what it means for your business.
What is it and why does it affect not only digital companies but all industries?
The digitalisation of the economy has social and economic impacts in many areas, including taxation and, in particular, the current international tax system. This system was designed in an era when companies provided services and goods mainly through physical presence locally or internationally. With the emergence of purely digital companies and subsequent digitalisation of goods and services companies alike, it has been widely recognised that the current international tax system is no longer fit for purpose.
In order to adapt existing tax systems, members of the OECD/G20 Inclusive Framework (IF) on BEPS are looking at a comprehensive, consensus-based solution to what has been considered the two main challenges arising from the digitalisation of the economy.
The OECD IF considers that addressing these challenges through a coordinated international response is key to maintaining a functioning international tax system and avoiding unilateral measures by individual countries.
The OECD IF is undertaking work under a Pillar 1 approach and will:
The work that the OECD IF is undertaking under a Pillar 2 approach would be based on a set of four rules:
Impact Simulation & Analysis
With the help of our proprietary PwC technology tools & dashboards you can simulate Pillar 1 & 2 impact and analyse the potential impact on your organisation. Contact us for more information and guidance on how our tools & advice can help prepare you for BEPS 2.0 reality.
Under an OECD Inclusive Framework, 140 countries agreed to enact a two-pillar solution to address the challenges arising from the digitalization of the economy. Pillar 2 introduces a global minimum Effective Tax Rate (ETR) via a system where multinational groups with consolidated revenue over €750m are subject to a minimum ETR of 15% on income arising in low-tax jurisdictions.
According to the initial timeline released by the OECD, these rules would become effective in 2023, except for the UTPR which would become effective in 2024. While EU Member States are working diligently to reach agreement on the rules, some countries, e.g., the UK and South Korea, have drafted domestic legislation, while others have initiated public consultations. Many countries have stated the need to push back the effective dates to 2024. Given the enormity of the task ahead this is expected and welcome. However, many multinationals already are subject to Pillar 2, since the transition rules capture certain transactions occurring on or after 30 November 2021.
Pillar 2 will have a monumental impact on your tax department’s end-to-end operations. You’ll need to ensure you have the data required to forecast and model in the interim, as well as the data needed to maintain reporting and compliance requirements once the new rules are enacted.
It’s not just your tax function that will be impacted. Key stakeholder groups including controllership and financial planning & analysis will also be affected. Such a broad BEPS 2.0 readiness initiative could potentially stretch your resources to or beyond their limits. The person in charge needs to respond to questions and challenges across four broad categories: people, process, data and technology.
If you’re within scope, you’re going to have to understand, evaluate and model the impacts of Pillar 2 across the organisation. This includes assessing the additional data and reporting/compliance requirements, evaluating your existing technology ecosystem and capabilities, setting up processes and controls, preparing and training resources, and managing stakeholder expectations.
At PwC we’re geared up to helping you evaluate how Pillar 2 might impact your organisation and assessing what’s required for readiness. Given the changes to the law anticipated in many countries, we can help you work out how to access the financial data necessary for compliance, identify gaps in the data needed for reporting, and re-evaluate your operations.
We help assess and model the likely financial and operational consequences of Pillar 2, including:
We can enhance your reporting and data analytics capabilities, including:
We help you meet your ongoing reporting and compliance obligations, including:
The new compliance and reporting requirements introduced by Pillar 2 are based on new calculation methodologies. The data points used for existing reporting and those required for Pillar 2 overlap to some extent. We advise doing an assessment to confirm whether required data points can be extracted from source systems or whether you’ll need change requests to capture the data required.
For the calculation, different approaches can be taken: in- or outsourcing, calculation within the existing ERP or consolidation system, or the usage of a tax engine. Which approach is the right one for a given multinational group depends on its tax and technology strategies.
Our engine draws on a centralised database with a vetted calculation engine in consultation with PwC Global technical and policy leaders. The database is dynamically updated for rule changes and new legislation in each jurisdiction.