Years in the making, the OCED’s “two-pillar solution” aimed at addressing taxation of the modern digital economy is becoming more of a reality. At a high level, Pillar One and Pillar Two are intended to: (1) reallocate profits and taxing rights of the largest and most profitable multinational enterprises (MNEs) (2) provide a minimum return to baseline marketing and distribution activities and (3) ensure that MNEs are subject to a minimum tax rate of 15%.
Pillar One would create a new taxing right in response to the reality that in-scope businesses can generate profits through participation in a jurisdiction with or without a physical presence and beyond the conclusion of sales. Pillar One applies to MNEs with turnover of > €20 billion and profitability before tax of > 10%.
Pillar Two is primarily targeting tax competition between tax jurisdictions. Under the OECD’s interim report concerning the implementation of a global anti-base erosion (GloBE) minimum tax under Pillar Two, the tax rate is set at 15%. MNEs with turnover over €750 million and subject to country-by-country reporting are likely to be exposed to the GloBE minimum tax and will need to maintain a new set of accounting records for that purpose.
In-scope companies or businesses would be well-advised to assess their potential exposure to Pillar One and Pillar Two taxation in the near term, so they can start to socialize the potential for change more clearly within their organizations, begin to assess its impact on tax liabilities and the potential for double taxation, and consider any optimization strategies that might be available. To help in this effort, we are pleased to offer an OECD Pillar Insight Simulation that helps calculate and compare future-state taxable income and effective tax rates under Pillar One and Pillar Two. Our simulation benefits not only MNEs that currently meet the Pillar One and Pillar Two inclusion thresholds but also those on the cusp of the thresholds and/or those concerned with lower thresholds in subsequent years.
Read more about the progress towards Pillar One and Pillar Two implementation and what is included in a Kroll OECD Pillar Insight Simulation.