[ Pillar II ] 1 in 4 tax professionals yet to prepare for $150bn global corporate tax
A quarter of tax leaders are taking no action yet ahead of OECD’s upcoming global minimum corporation tax, finds new research.
Businesses are failing to put in place tools and training to meet requirements of new legislation, which is separately expected to gather an extra 150bn annually.
Tax governance expert Loctax finds just 1 in 20 are actively investing in new processes, as ‘BEPS Pillar II’ could be adopted as soon as next year.
One in four tax professionals are doing nothing to prepare for an upcoming global corporation tax which could raise an additional $150bn per year, according to new research.
A quarter of respondents said that they were ‘waiting to see’ what would happen with legislation from the OECD which would impose a minimum global corporate tax of 15%, in research led by tax governance experts Loctax.
A survey of 100 tax leaders, including heads of tax, tax managers, and CFOs from multinationals, found that nine in ten thought the legislation - BEPS Pillar Two - would affect their business, but just over half (55%) were actively doing anything to prepare. This preparation mostly took the form of impact analysis, which Loctax described as the ‘bare minimum’. A quarter of respondents were doing nothing at present, though the rules could be rolled out in some countries as soon as the end of 2023.
Loctax warned that this was not a pragmatic approach, saying that whatever final form the legislation takes, many multinationals would be left unprepared to meet new obligations and risk fines from tax authorities or reputational damage. They said that Pillar II was just the beginning of an entire wave of new international-first tax regulations that will impact the majority of multinationals.
Pillar Two of the Base Erosion Profit Shifting (BEPS) legislation would establish a global minimum corporate tax of 15%, to avoid companies offshoring profits in low-tax havens and therefore not contributing to economies where they generate revenue.
Loctax, a collaborative tax governance platform, published the findings ahead of a meeting of the EU’s Economic and Financial Affairs Council (ECOFIN), which will decide whether BEPS Pillar Two is adopted across the EU. Even if the new rules fail to achieve collective approval, individual countries including France, Spain and the Netherlands have already stated that they will introduce the legislation by themselves in 2023.
Loctax CEO Hans Kayaert commented:
“The way multinationals currently deal with new tax legislation is like waiting until their house is on fire, and then paying for a very expensive bucket of water each time, rather than investing in fireproofing.
“Relying on spreadsheets scattered across multiple countries and teams to run your tax affairs is no longer fit for purpose. Businesses need to put long-term, scalable solutions in place to avoid relying on one-off fixes at enormous expense once regulatory pressure has reached bursting point.”
Only 1 in 20 respondents were either investigating or implementing a new process to prepare for Pillar Two’s impact, the research found. Just 3% of respondents said that training their team was their top priority when anticipating the main challenges of the new legislation. Two thirds of companies felt that they were not equipped to gather and analyse all the tax data that would be needed to comply with the rules.
Companies are under increasing pressure to improve tax transparency and to respond to p ublic and private expectations around companies’ ESG (environmental, social and governance) reporting. A recent survey found that more than a third of officials in the OECD perceive most large businesses to be non-transparent around their tax affairs.
“Time is ticking away ahead of these new rules and countries everywhere are coming up with draft legislation to implement them. Most tax teams know that they need to make a change. But nowhere near enough are preparing solutions, including technology, within the wider business, to handle new responsibilities.
“Whatever the EU decides on 6th December, BEPS legislation is going to arrive. Businesses must make sure their tax function can support them in an increasingly values-led capital market, or risk a raft of financial and reputational challenges.”