Pillar Two Global Minimum Tax Planning

Pillar Two Global Minimum Tax Planning

Pillar Two Global Minimum Tax Compliance

Pillar Two, commonly referred to as the “global minimum tax” or “GloBE,” establishes minimum tax rules to ensure large multinational enterprises (MNEs) pay a minimum effective tax rate of at least 15%, calculated based on a specific rule set. More than 140 countries have agreed to enact Pillar Two tax reform, which comprise the majority of the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting.

The Pillar Two model rules will have a far-reaching effect on the taxation of MNEs, especially those with an effective tax rate below the minimum in any jurisdiction, which would be required to pay a top-up tax to their corporate headquarters location.

The tax would be applied to groups with revenue of at least €750 million (currently roughly $800 million) per year. In addition to the obligation to pay a top-up tax under Pillar Two, failure to comply with the filing requirements within 15 months after the fiscal year end of each constituent entity results in a penalty equal to 5% of revenue for the entity that does not meet the filing requirements.

Please view our Pillar Two Q&A to learn more about the global minimum tax requirements, implementation, and – in some cases – hidden benefits of Pillar Two regulatory requirements. 

 

Our team of international tax practitioners will help assess the likely impact of Pillar Two on your organization. Following a six-step process, we will:

  • Conduct initial assessment to identify the MNE groups, including the filing and parent entities
  • Remove any excluded entities
  • Determine GloBE income, ETR and estimated top-up tax for MNE groups
  • Identify permanent establishments
  • Determine de minimis threshold
  • Implement elections (GloBE Pillar Two Safe Harbor Election checklist)

CBIZ has developed proprietary software that precisely calculates an MNE’s effective global minimum tax rate and top-up tax liability for each of their jurisdictions. The initial automated calculation tool takes a sample dataset of underlying information and provides the following:

  • GloBE income or loss
  • Adjusted covered taxes
  • Effective tax rate
  • Substance-based income exclusions (carve-outs)
  • Top-up tax rate
  • Top-up amount

This calculation engine can be used regardless of the entity type and the number of jurisdictions the MNE has.

 

Pillar Two Next Steps

CBIZ tax professionals suggest you begin the Pillar Two process with an assessment. Our team will work with you and your team to:

  • Identify the applicability of Pillar Two to your organization
  • Use the CBIZ calculation tool to conduct a high-level assessment of your jurisdictions’ effective tax rate
  • Identify where data gaps exist
  • Propose actionable next steps, including correcting Pillar Two data gaps and designing a tax-optimized legal and transfer pricing structure.

Learn how our international tax services team can support your organization regarding Pillar Two Global Minimum Tax planning and compliance. Connect with our team today. 

As CBIZ communicated in our previous article, Mark Your Calendars: Pillar Two Compliance Is Around the Corner, multinational enterprises can expect fundamental changes to global taxation. 

As supply chain disruptions continue to impact the industry, many companies are looking to adopt new strategies to help them reduce costs and streamline their processes. 

As a CFO, you are likely already aware of Pillar Two and the significant global tax changes it brings. However, it is imperative to understand this is one of the most fundamental changes United States multinational entities have seen in years.

Don Reiser

Managing Director

 212-790-5724
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Jan Smallenbroek

Managing Director

 401-330-3048
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