Global taxation landscapes are evolving, and the implementation of BEPS (Base Erosion and Profit Shifting) Pillar Two brings forth a new set of challenges for multinational enterprises (MNEs). While the proposal for a 15% global minimum tax may seem straightforward, the operational complexities associated with its implementation are substantial. In this blog post, we will delve into the challenges posed by BEPS Pillar Two and discuss strategic approaches for companies to prepare effectively.
Challenges Overview:
Material
Impacts
Implementing top-up taxes may necessitate significant adjustments to global structures, value chains, and activity locations to mitigate material impacts. This could result in increased cash tax costs and a reduction in earnings per share.
New Financial Statement Disclosures
MNEs will be required to disclose jurisdictions with potential exposure to top-up taxes in their financial statements, adding complexity to the existing financial close process.
Data
Management
Calculations under BEPS Pillar Two involve pulling data from over 250 new sources per entity across multiple countries, posing a substantial challenge for corporations with diverse regional systems.
Process
Change
Group-level filing requires adaptations to financial close and consolidation processes, along with change management efforts to educate employees on new processes and regulations.
Tech
Changes
Existing ERP systems may lack the robustness to support BEPS Pillar Two complexities. Implementing a comprehensive Corporate Performance Management (CPM) solution is recommended to manage affected processes efficiently.
Connecting
Finance and Tax
Collaboration between historically siloed tax and finance departments becomes crucial, requiring open communication, shared data, and integrated systems.
Limited Time
to Prepare
With less than a year to report tax positions, companies face a time crunch to prepare financially, adjust processes, and refine data management.
Regulatory
Changes
Varying national approaches to BEPS Pillar Two create uncertainty. Adopting an agile approach to tax reporting is essential to navigate potential future changes.
Strategy
Companies must strategically incorporate minimum tax provisions into decision-making processes, influencing choices like facility locations to manage material impacts effectively.
BEPS Pillar Two Data Requirements:
The recent AMCO & ATC webinar shed light on the extensive data management requirements under BEPS Pillar Two. (view it here)
Key Points Include:
- New Data Requirements:
BEPS Pillar Two filings necessitate handling 250 new non-financial data points per entity, introducing tax considerations into financial close, quarterly statements, and annual reports. - Effective Tax Rate (ETR) + Constituent Entities:
Understanding constituent entities and calculating the effective tax rate involve incorporating the 250 data points when creating financial statements. - Global Calculations and Impacts on Consolidation:
Complex global calculations require local organizations to collect information for consolidation, altering global consolidation processes.
To navigate BEPS Pillar Two challenges, companies should consider the following steps:
- Conduct an Impact Assessment:
Run an assessment to identify entities subject to BEPS Pillar Two, evaluate potential cash impacts, determine at-risk jurisdictions, and assess data management capabilities. - Governance Measures:
Implement governance measures to ensure data accuracy and prepare for future BEPS Pillar Two updates and rule changes. - Technology Assessment:
Evaluate existing technology's capacity to support BEPS Pillar Two requirements. Consider implementing a new solution, such as BEPS Pillar 2 for OneStream.
As the global tax landscape transforms with BEPS Pillar Two, multinational enterprises face complex challenges. Proactive measures, strategic decision-making, and technological investments are key elements in preparing for the future of international taxation. By addressing these challenges head-on, companies can ensure compliance, mitigate risks, and strategically align their tax positions with broader business objectives.
Discover BEPS Pillar 2 software
Don't let complex tax requirements slow you down. Equip your team with the tools they need to ensure compliance and strategic decision-making. Take the next step toward a streamlined BEPS Pillar Two journey.
Don't let complex tax requirements slow you down. Equip your team with the tools they need to ensure compliance and strategic decision-making. Take the next step toward a streamlined BEPS Pillar Two journey.
Related Resources
What is BEPS Pillar two?
This BEPS Pillar 2 guide explains this new important topic in international taxation.
Discover Pillar 2 for OneStream
Learn about the implications of BEPS Pillar 2 and get a comprehensive overview of the solution and how to prevent non compliance, double taxation and inefficient tax planning
Tax Provisioning for OneStream
Unite corporate finance with your tax processes. Unify these functions and improve efficiency, accuracy and the speed of tax reporting all within the OneStream platform
