The start of 2024 marked a new era for corporate taxation as the Organisation for Economic Co-operation and Development’s (OECD) Pillar Two tax regime – otherwise known as the global minimum tax – was enacted (or in the process of being enacted) in more than 50 jurisdictions, including all G7 economies except the United States. The globally coordinated effort was introduced to ensure large multinationals pay a minimum tax rate of at least 15% in every jurisdiction in which they operate. If the minimum tax rate has not been met in a jurisdiction, companies are then subject to a ‘top-up tax’ to make up the shortfall.
For in-scope multinationals (those with at least €750 million of consolidated group revenue), the implementation of Pillar Two will bring many challenges, including a host of new reporting and compliance obligations to navigate. Establishing a global minimum tax required over 140 jurisdictions to agree on a global tax base and a measure of the taxes otherwise paid with respect to that income. The result is a complicated hybrid system blending financial and tax accounting concepts that effectively will require companies to maintain a third set of books. Though the United States has not yet signed on, US multinationals will not be spared the headaches of complying with the new regime in countries that are pressing on with the deal. As companies embark on navigating the new global tax regime in 2024, they should keep the following four resolutions in mind:
- Prioritize cross-functional collaboration.
Although the global minimum tax in name sounds like it’s just a tax issue, it’s not. Pillar Two has wide reaching impacts that extend far beyond tax – significantly impacting the finance and controllership functions and IT, but also implicating HR, internal audit, and legal departments. Companies that attempt to silo efforts entirely within the tax department will struggle. A true cross-functional team effort is critical.
- Keep data at the center of everything.
Compliance will require vast amounts of data gathering across the business and in each jurisdiction. By leveraging data analysis tools to ingest and make sense of the data, companies can streamline the process, gain insights into their tax liabilities, identify areas of risk, and deliver greater value to the business. Simply put, data will be a key enabler for companies to navigate the complexities of Pillar Two – and the key to success.
- Seize the opportunity for transformation.
Never let a good crisis go to waste. The newly implemented regime presents a unique opportunity for companies to transform their operations by streamlining processes, upgrading technology systems, and enhancing risk management frameworks to position themselves for long-term efficiencies.
- Don’t wait. Act now.
It’s up to each jurisdiction to determine which collection mechanisms to implement and when. Even still, the clock is ticking. In most jurisdictions, it’s not a matter of if, but when, and a critical mass has already implemented for 2024. Companies that prepare in advance, getting a grasp on the onerous data gaps and modeling the short and long-term impacts, will come out on top.
With the global minimum tax already a reality, the time is now for companies to ensure they are prepared for what’s to come in 2024 and beyond. As much of the world implements their new year’s resolutions, multinationals should follow suit.
Danielle Rolfes is partner in charge of the KPMG Washington National Tax practice, the technical core of the firm’s Tax practice in the United States.
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