Is your company ready for Pillar Two’s Global Minimum Tax?

The OECD is working on the global implementation of tax proposals under two “pillars” as part of its BEPS project. Pillar Two focuses on ensuring that large MNEs pay a minimum rate of tax. Keeping up with Pillar Two legislation will be one of the biggest challenges MNE tax teams will face in the next few years. Most of the OECD’s member jurisdictions are moving steadily towards enacting Pillar Two rules, with close to 40 countries implementing the rules in 2024 and up to 60 countries expected to implement rules by the end of next year. As a result, 95 percent of in-scope MNEs will be affected in 2025 by Pillar Two Rules. This first article is designed for those clients just beginning their journey or those that have taken steps forward but need to validate work completed to date.

Is your company ready for Pillar Two's Global Minimum Tax?

This article is designed for those clients just beginning their journey or those that have taken steps forward but need to validate work completed to date.

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Key takeaways for tax leaders managing through Pillar Two

MNEs need to act quickly to prepare for the OECD’s Pillar Two Global Minimum Tax, which will be enacted in countries around the world as early as 2024.

MNEs with consolidated revenue above EUR 750 million are affected. Pillar Two imposes a 15 percent minimum tax rate in each jurisdiction in which an MNE operates.

To comply with these rules, tax teams will require substantial new forms of financial data they may not currently have access to within their organizations.

To prepare for Pillar Two, companies should begin with an impact assessment. This assessment will:

Identify the MNE group’s Ultimate Parent Entity (UPE) and the accounting standards applied to consolidate the constituent entities of the MNE
Perform a legal entity classification for each constituent entity of the MNE
Assess eligibility for safe harbor rules that apply for the first three years that Pillar Two rules apply
Model preliminary cash tax impacts
Consider the impact of any planned M&A activity
Prepare for new financial statement disclosures.

An impact assessment can lead to early identification of adverse outcomes from Pillar Two and enhance business planning.