Global Tax Revolution: Analyzing the Impact of Country-by-Country Reporting and OECD’s Pillar Two Rules.
Introduction
CbCR has grown significantly in prominence since its widespread adoption seven years ago and is no longer seen only as an annual tax compliance exercise. It will be part of the interim steps for putting into effect the Global Anti-Base Erosion (GloBE) regulations of OECD Pillar Two, which are anticipated to influence the global tax landscape significantly. It is also anticipated that CbCR data will soon be made available to the general public.
The CbCR and Pillar Two laws, as well as their effects on cross-border intercompany operations, will be briefly discussed in this article.
BEPS 2.0: Pillar One and Pillar Two Initiatives
The OECD is an organization that promotes economic growth, stability, and cooperation among countries. Its BEPS (The Base Erosion and Profit Shifting) 2.0 program fills in the gaps left by the original BEPS project in addressing issues related to the activities of multinational corporations and the digital economy.
The two-pillar approach was developed through consultation and participation with stakeholders, including governments, businesses, civil society, and academia, as was the case with the first BEPS package. Since the issuance of the progress report in October 2021, significant progress has been made with implementation.
CBCR and Two-pillar rule
The OECD/G20 Inclusive Framework on BEPS (Base Erosion and Profit Shifting) has completed key elements for Pillar Two, which tackles international tax issues as of April 2023. The framework consists of an Income Inclusion Rule (IIR), a minimum tax rate of 15%, and a monetary threshold of EUR 750 million in global turnover. If the effective tax rate is lower than the minimum agreed upon, the IIR obliges governments to tax the revenue of a multinational enterprise’s (MNE) overseas branch or controlled subsidiary.
Under the rules, related-party payments with incomes below the minimum tax rate may be subject to withholding tax or denied deductions by the relevant jurisdictions under the Undertaxed Payment Rule (UTPR).
Safe Harbour Conditions: Guidelines for Eligibility, Fiscal Years, and Data Quality in CbCR
Dive into the intricate realm of Safe Harbour Conditions, exploring eligibility criteria, fiscal year considerations, and ensuring data quality in CBCR reporting. Gain invaluable insights into navigating the complexities of CBCR reporting with confidence and precision
Except for fiscal years ending beyond June 30, 2028, the safe harbour is in effect until fiscal years starting from or before December 31, 2026. To be eligible, MNEs must apply for it during a previous fiscal year.
Reallocating profits across nations is the main goal of Pillar One, particularly for businesses with substantial consumer-facing operations. Pillar Two proposes an Income Inclusion Rule (IIR) and a global minimum tax rate to prevent profit shifting and base erosion.
How Can We Help?
DataTracks offers solutions to meet the demands of numerous EU local and top regulators. The Country-by-Country Reporting (CbCR) framework and template are described in the BEPS (Base Erosion and Profit Shifting) Action Plan 13 for Multinational Enterprises (MNEs). This allows MNEs to submit information to the tax authorities in each country with a tax presence.
MNEs with yearly sales above 750 million euros (or the equivalent in other currencies as determined by the tax authorities in their respective countries) must submit their reports to their regulator in XML format.
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