Preparing for BEPS 2.0: are you ready?

MHA Tax Partner Chris Danes explores how a multinational client might have been impacted if BEPS 2.0 had already been in place.

With just over a year since the G7 announcement on the 15% minimum corporate tax rate, multinationals are moving to understand what the various changes might mean for their operations.

For a key Baker Tilly International client, with 6,000 staff across nearly 70 countries, we undertook a detailed modelling exercise that considered its potential international tax exposure, through the lens of BEPS 2.0.

A construction business with an annual turnover of £2 billion, the client is committed to meeting its international tax obligations.

But they wanted more detail about the steps the group would need to take to comply with BEPS 2.0 from 1 January 2024 — the date given for implementation of rules already agreed to in practice by 140 OECD member jurisdictions.

Our task was to understand how recent results for the multinational client might have been impacted if BEPS 2.0 had already been in place.

We started by modelling the client’s business across the globe.

This included modelling two years of country-by-country reporting, to identify the effective tax rate of the client in each jurisdiction.

Under the BEPS 2.0 approach, there are two interlocking rules together known as the Global anti-Base Erosion Rules (or GloBE) which can impose a top-up tax on entities in jurisdictions where the effective tax rate is below 15 per cent.

In the case of our client, we identified around 10 jurisdictions that potentially had an ETR below this threshold, which could trigger additional tax liabilities of close to £1 million per annum.

Through this process, we also examined items that could be eliminated from the calculation, including R&D and dividends, while focusing on high-risk jurisdictions.

With a better picture of BEPS 2.0 tax implications in hand, the next phase of our work was to prepare for accounting considerations directly impacted by the proposed new rules.

These include the groundwork for future effective tax rate disclosures in the Financial Statements and the need to start accruing additional taxes from 1 January 2024 or once new rules apply globally.

For the client, the insights gleaned through our approach has given the business time to consider restructuring, such as relocating people away from lower-tax jurisdictions to areas more logically suited for those functions or rationalising some entities based on corporate strategy and potential risk.

The final phase involves working with the company to prepare for BEPS 2.0, now we understand more about how these rules might impact the client’s tax obligations.

The rules will mark a seismic shift in the global corporate tax system.

To minimise disruption for our client, we will now collaborate on putting in place the right systems and data collection processes with appropriate resourcing to ensure future compliance.

We can apply the same tested process for any other multinational looking to understand the most significant tax changes on the global horizon.