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As CBIZ communicated in our previous article, MarkYour Calendars: Pillar Two Compliance Is Around the Corner , multinationalenterprises can expect fundamental changes to global taxation. To date, 140countries, including the majority of Europe and key Asian jurisdictions, haveagreed to enact the Organization for Economic Development (OECD) Pillar Two modelrules in time for tax years beginning Jan. 1, 2024. Despite the intention forthe U.S. to enact legislation, many practical issues remain unresolved.However, the OECD, the United Nations and numerous non-member countries havemade their intentions clear—these issues will be resolved later, preferring“good enough” to perfect.
Based on this agreement, each jurisdiction must enact its local interpretation of the model rules through its legislative process, which can certainly create additional administrative complexities. Understanding how your company is impacted by Pillar Two from a practical standpoint is critical, though it can be quite an administrative burden, requiring analysis and vigilance.
So Now What?
Pillar Two Model rules will require access to data and systems that historically have not been in the scope of a tax department’s purview. Additionally, the rules require knowledge of data at a level of granular detail greater than most tax departments currently review or prepare.
However, designing a system, standardized process and developing a team responsible for addressing Pillar Two, and ultimately filing a GloBE return, simply can’t wait until the 2024 compliance season—the time to act is now. Beyond this, key stakeholders such as auditors, investors and your board of directors will begin asking for more specific details about how Pillar Two model rules will impact your business. Answering these questions is not as simple as adjusting individual effective tax rates to 15%. There are many definitions in the model rules, which are creating unexpected results.
Review our Pillar Two Q&A for more information.
Pillar Two Items creating unexpected results include:
- Treatment of the U.S. Global Intangible Low-Taxed Income (GILTI) Regime
- Definitional inconsistencies between the rules enacted in jurisdictions and what is done in practice by businesses
- Timing differences
- Book to tax differences when tax base is calculated based on accounting standards
- Impact of common incentive regimes, such as R&D incentives and notional interest deductions, creating top-up tax
What should you do to prepare for Pillar Two implementation?
Proper preparation for the implementation of Pillar Two requires a comprehensive review of the information, systems and processes currently available and utilized by the tax department compared with those required by the model rules. Second, and equally important, is determining at a high level how the model rules would apply to the jurisdiction in which you operate.
- Do you meet a safe harbor?
- What is your effective tax rate by GloBE standards?
- If a top-up tax is levied, who would be responsible for paying, and would it have the cash to pay it?
- How would the organization be impacted if a particular jurisdiction is not compliant with the model rules?
How can we help?
As a first step, CBIZ will conduct an initial assessment, which offers a comprehensive analysis of the Pillar Two requirements, and how the model rules specifically apply to your organization. As part of this first step, we will collaboratively review your overall corporate footprint, tax profile, effective tax rate, data availability and other potential operational issues. These projects typically take six weeks to complete and will provide you with a comprehensive understanding of the opportunities to better prepare for implementation, as well as finding opportunities for planning to reduce any potential top-up tax.
Remember, waiting until the last minute to begin the process for implementing Pillar Two will put your organization at a disadvantage. By acting now, you can help ensure you are well-prepared and mitigate the risk of non-compliance.
At CBIZ, our international tax, transfer pricing, accounting and IT experts stand ready to assist you with a comprehensive understanding of the Pillar Two rules, to assess the impact on your organization, and to work collaboratively with you to develop a customized approach to ensure future compliance. Connect with us today.
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