Ross Robertson
International Tax Partner, BDO UK
The OECD’s Pillar Two framework aims to ensure multi-national enterprises (MNEs) with global revenues above €750 million are subject to minimum tax rate on income within each jurisdiction in which they operate. Commonly referred to as BEPS 2.0, the framework imposes a Top-Up Tax on profits arising in jurisdictions where the effective tax rate (ETR) is below 15%.
Irrespective of whether any top-up tax ends ultimately arises, Pillar Two has created a significant compliance burden for in scope MNEs.
How are the rules being implemented?
The core elements of Pillar Two are:
- A Qualified Domestic Minimum Top-up Tax (QDMTT);
- An Income Inclusion Rule (IIR), and
- An Undertaxed Profits Rule (UTPR).
Implementation timelines vary by jurisdiction. Many countries have now introduced QDMTTs, IIRs and UTPRs, while others continue to enact legislation. As a result, multinational groups must monitor developments across all territories in which they operate. Over 60 countries have implemented at least one of the core elements of Pillar Two.
Who does Pillar Two apply to?
The rules apply to MNEs (and in a number of territories wholly domestic businesses) with annual consolidated revenues of at least €750 million in at least two out of the prior four accounting periods. Every global organisation with global revenues of €750m or more will need to act to be compliant with Pillar Two. In addition, organisations that are close to the threshold will need to actively monitor whether they continue to fall outside of scope and, if on a growth trajectory, take action to prepare for Pillar Two compliance when they cross the revenue threshold. It should be noted that a group may come immediately within scope if it exceeds the threshold as a result of M&A activity rather than organic growth due to specific rules on mergers.
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More on Pillar Two – our webinar series
Please see below BDO’s webinar series exploring the Pillar Two rules. The series explores the technical and practical aspects of the rules, to enable affected organisations to prepare and respond effectively.