Collaboration Is Gateway to Success Under New Global Tax Rules

This year, multinational enterprises around the world are on the clock to begin calculating, reporting, and paying the 15% global minimum tax under a new and complex international taxation system known as Pillar Two.

These requirements involve intensive analysis, system changes, monitoring, communication, and collaboration. Multinationals must change their processes and wrangle voluminous accounting data into the required calculations and reporting requirements—all while much uncertainty remains.

Government tax administrations around the world face the same challenge, arguably without the advantage multinationals have in terms of familiarity with all things accounting. The challenge with a process still in flux is how to make it work.

The OECD has published guidance, and further clarification is expected and necessary given the complexity of the rules. At this moment, 45 out of 145 members of the Inclusive Framework have formally adopted Pillar Two rules, and implementation in many adopting countries is ongoing.

Upskilling takes time for multinationals and tax administrations, especially when it requires additional resources to interpret guidance, develop systems and processes to retrieve and analyze data, and open forums to communicate about unintended results.

Multinationals already report their financials according to local statutory requirements in the jurisdictions where they operate, and on a consolidated basis. Pillar Two adds a new and complex set of procedures to an already challenging reporting schedule.

Initially, multinationals started by digesting the rules and identifying the internal data and systems necessary for complying. Modeling yielded the first opportunities to articulate the cost and complexity of adding a third, completely new and different, set of books and records into compliance processes. It also highlighted the need for businesses to be engaged in dialogue around how taxes are calculated, reported, and paid under Pillar Two.

When business is actively engaged in shaping, designing, and implementing policy, it leads to clearer, more administrable rules. The business community has advocated for simplification by using the natural accounting systems that robustly track and report complex accounting information such as deferred tax accounting.

Following the natural accounting system as a starting point gives both multinationals and tax administrations a fighting chance to be comfortable that, when you unravel the spaghetti, you can link it back to the pasta dish you started with. It has been clear in the formulation of these rules that when multinationals can provide substantive input, we are closer to formulating rules that will work in practice.

As we get further into the weeds of detailed implementation of these rules, it will be as important as ever for multinationals to have the opportunity to communicate issues as they arise in real time. It will be crucial to collaborate with the OECD and implementing authorities so everyone moves closer to the goal of workable rules.

A global minimum tax can only truly work if it’s uniform and global, meaning governments and tax administrations play a key role in Pillar Two’s success. Many governments are still evaluating how best to transpose the guidance into their laws and implement review procedures for a taxing mechanism that operates from an unfamiliar base and involves significant amounts of new data.

The success and outcomes of these rules depend on how closely domestic implementation aligns with the model rules and a consistent administration of the rules. Practically speaking, if all members of the Inclusive Framework haven’t adopted the rules, any revenue estimates should be treated with caution.

Necessity will drive an approach where multinationals and tax administrations are pragmatic and adopt a holistic view of existing and proposed guidance. They should continue to communicate, with a commitment to getting the reporting processes right.

As the year progresses, eliminating redundant rules is as important as ensuring clarity and stability. Where Pillar Two is in effect, it’s time to start identifying and eliminating duplicative compliance requirements. If a global minimum tax means multinationals must pay regardless of their structure, then the current rules should replace any existing rules with the same objectives.

There is also more scope for us to work together to design additional simplifications in the rules and some well-designed permanent safe harbors that direct compliance intensity to circumstances where undertaxed profits exist. This will serve to reduce the burden for tax administrations and multinationals, which are already resource-constrained.

Overall, the success of Pillar Two will rely on our ability to foster collaborative engagement between multinationals, policy makers, and tax administrations.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Ann-Maree Wolff is vice chair of the Business at OECD Tax Committee and co-chair of the Pillar Two Business Advisory Group.

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