BEPS 2.0 – Global Tax Framework

Changing the Global Taxation Playing Field

The evolution of global tax reform efforts – embodied in the OECD’s two-pillar framework -- is intensifying. Tax policymakers across the globe have agreed to address the globalization of digital business activities by working toward a global tax framework that promotes greater equity. Tax reform results in ongoing change that will have considerable implications for multinational businesses. 

BDO keeps a close watch on global tax reform developments and provides insights on what those developments may mean for global organizations.

Key Takeaways

1.

Global tax reform continues to take shape after years of negotiations. Addressing the tax challenges arising from the digitalization of the economy and the globalization of business is the OECD/G20 Inclusive Framework’s number one priority. To address the challenges, the Inclusive Framework developed a two-pillar solution comprised of Pillar One and Pillar Two. 

2.

Change is now upon us. Although the negotiations regarding Pillar One are behind schedule, the Inclusive Framework is making steady progress. The Inclusive Framework announced on May 30, 2024, that it is nearing completion of the negotiations on a final Pillar One package that includes a text of the Multilateral Convention (MLC) for Amount A and a framework for Amount B, with the goal of reaching a final agreement in time to open the MLC for signature by the end of June 2024. 

Pillar Two has been enacted in many jurisdictions, including most EU member states, effective for tax years beginning after December 31, 2023. Numerous other jurisdictions are in the process of adopting Pillar Two legislation. Pillar Two disclosures in the 2023 annual financial statements are required for SEC registrants. Pillar Two taxes must be accrued starting in the first quarter of 2024. 

3.

U.S.-based multinational enterprises (MNEs) should monitor developments and review the final rules in their home jurisdiction to assess any potential impact to their business. They should also keep track of implementation progress in all countries in which they operate.  

4.

Pillars One and Two are transforming the international tax landscape.  BDO has broad and deep expertise in helping MNEs navigate global tax reform opportunities and challenges. Our Transfer Pricing and International Tax practices can help you evaluate the potential impact of Pillars One and Two on your business.  

Five Key Areas to Explore

Background

Two-Pillar Framework

Preparation

BDO's Take

Insights

Background

Base erosion and profit shifting (BEPS) refers to tax planning techniques used by global organizations to shift profits to low-tax jurisdictions to lower total tax liability. Over 140 jurisdictions are working with the OECD/G20 Inclusive Framework on 15 BEPS action items to address perceived tax avoidance techniques, improve coordination of international tax rules, and enhance transparency in international tax. The two-pillar framework is an outcome of the BEPS project.

The Inclusive Framework announced on October 8, 2021, that it had agreed a two-pillar solution to address the tax challenges arising from the digitalization of the economy. The announcement included a description of each pillar’s components, and a detailed implementation plan.

Top Drivers of Global Tax Reform

Two-Pillar Framework


Pillar One
Pillar Two
Summary

This changes some nexus and profit allocation rules for taxation.

The signatories to the October 2021 IF statement committed to provide the necessary coordination between the new rules and the removal of all digital service taxes.

This attempts to stop the “race to the bottom” by jurisdictions lowering their corporate income tax rates. Pillar Two establishes a global corporate minimum tax rate of 15%. 
In-scope MNEs

Threshold:

Global revenue above EUR 20 billion and profitability above 10%.

That threshold could be reduced to EUR 10 billion upon review seven years after the agreement enters into force.

Threshold:

Global revenue above EUR 750 million.

Out-of-scope Industries
  • Extractive industries
  • Regulated financial services
  • International shipping
  • Government entities
  • International organizations
  • Nonprofit organizations
  • Pension funds or investment funds that are ultimate parent entities of an MNE group or any holding vehicles used by such entities, organizations or funds

Preparation

U.S. MNEs that are in scope for either pillar of the framework will see an increase in the complexity of their tax profiles and could see an increase in their total tax liability. 

Companies should scenario plan to determine the tax costs and administrative burdens imposed by Pillar One and/or Pillar Two and how those challenges may require changes in their tax strategies and processes. This could necessitate a reevaluation of business and operating models to better align with global tax policies. 

Actions MNEs Can Take
How BDO Can Help
  • Perform impact assessments to identify high-risk areas and the potential ETR and cash tax
  • Identify potential tax planning opportunities to maintain or adjust certain tax structures or positions (such as financial accounting structure, capital structure, the use of certain attributes, and related items)
  • Determine if any remedial tax planning is necessary, including restructurings and simplifications of legal and operating structures
  • Develop a roadmap for Pillar One/Pillar Two compliance
  • Engage in ongoing communications with the board of directors and shareholders

Assisting with impact assessments and modeling

  • Explaining, evaluating, and communicating appropriate responses to the impact assessments
  • Modeling ETR and cash tax impact, supply chain and broader organizational effects
  • Identifying potential structuring options for the capital and operational supply chain
  • Developing a roadmap for Pillar One/Pillar Two that identifies and addresses potential compliance implications.

Assisting with compliance

  • Identifying and helping MNEs comply with future financial statement disclosure requirements
  • ASC 740 consultations to address specific accounting complexities.

Assisting with restructurings and simplifications

  • Identifying potential legal and operational restructuring opportunities to address Pillar Two compliance obligations
  • Providing additional services, such as transfer pricing analyses, to ensure Pillar One/Pillar Two compliance optimization

Assisting with technology implementation

  • Determining and helping to implement the necessary technology for Pillar One/Pillar Two compliance, and defining the necessary data and sourcing requirements
  • Helping to define and integrate data and processes within the clients’ existing ecosystem and obligations

Assisting with communication

  • Helping prepare board presentations on the impact of Pillar One/Pillar Two
  • Acting as a resource to help answer shareholder/director questions regarding the impact of Pillar One/Pillar Two

BDO's Take

The legislative bodies of the 140+ countries that have signed the October 2021 agreement will need to take action to enact the new rules into domestic law. Work on the implementation of Pillar Two into domestic law is well underway in many jurisdictions, including all EU member states, with most adhering to a planned entry into force in 2024. In some jurisdictions, Pillar Two legislation has already been enacted. It is important to continue to monitor global developments to determine which jurisdictions will keep to this timetable. 

Insights

The latest updates and historical perspectives around the globe.

Webcast

BEPS pillar two: insights, readiness, and risks

June 18, 2024

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Webcast

Pillar Two Fundamentals – A Practical Overview

May 15, 2024

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Webcast

Global Perspectives on the OECD’s Amount B

April 16, 2024

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Webcast

Assessing the 2024 Tax Landscape

April 3, 2024

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Archived Webcasts

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