BEPS Pillar 2

What is BEPS Pillar 2?

BEPS Pillar 2, also known as the Global Anti-Base Erosion (GloBE) proposal, is a part of the OECD/G20 Base Erosion and Profit Shifting (BEPS) project aimed at preventing multinational companies from shifting profits to low-tax jurisdictions to avoid paying their fair share of taxes.

The objective of Pillar 2 is to ensure that companies pay a minimum level of tax on their income regardless of where it is earned to address the issue of tax base erosion and profit shifting. The proposal introduces two interrelated rules that work together to achieve this goal:

The Income Inclusion Rule (IIR): Under this rule, a minimum tax rate would be set for multinational companies on their income earned in low-tax jurisdictions. If the tax rate in the jurisdiction where the income is earned is lower than the minimum rate, the company would have to pay the difference to the jurisdiction where it is headquartered.
The Undertaxed Payments Rule (UTPR): This rule would deny a tax deduction for certain payments made by a company to related parties in low-tax jurisdictions. This would apply to payments such as interest, royalties, and management fees subject to little or no tax in the jurisdiction where they are received.

The proposed rules are aimed at ensuring that companies pay their fair share of taxes while also providing consistency and predictability in the international tax system. The proposal is currently being discussed by the OECD/G20 Inclusive Framework on BEPS, and it is expected to impact the global tax landscape if implemented significantly.

For who is BEPS Pillar 2 relevant and why?

BEPS Pillar 2 is relevant for multinational companies and governments around the world.

For multinational companies, Pillar 2 has the potential to significantly impact their tax planning strategies and compliance obligations. If the proposal is implemented, companies will need to ensure that they are paying a minimum level of tax on their income, regardless of where it is earned. This could involve changes to their legal and financial structures, as well as additional compliance requirements.

For governments, Pillar 2 is seen as an important tool to address the issue of tax base erosion and profit shifting, which can result in significant revenue losses. By implementing a minimum tax rate on income earned in low-tax jurisdictions and denying tax deductions for certain payments made to related parties in those jurisdictions, governments hope to increase their tax revenue and prevent companies from avoiding their tax obligations.

Pillar 2 is also relevant for taxpayers and society as a whole. By ensuring that companies pay their fair share of taxes, governments can fund public services and investments that benefit society, such as healthcare, education, and infrastructure.

Overall, BEPS Pillar 2 is a significant development in international tax policy that has the potential to impact a wide range of stakeholders, including multinational companies, governments, taxpayers, and society as a whole.

BEPS pillar 2 and CPM Software Solutions

BEPS regulations can be a huge challenge for your organisation. You face new regulations and more complexity in regulations. If you are using outdated systems or Excel for your tax reporting, this can add to the challenge. Data errors, inconsistency, or human error can lead to inaccurate reporting with major consequences.

How do you ensure you master the complexities and new Pillar 2 requirements?

Cpmview offers several BEPS Pillar 2 solutions within our CPM Software Solutions.