Introduction
With the introduction of BEPS (Base Erosion and Profit Shifting) Pillar Two, tax compliance will become increasingly challenging for multinational enterprises (MNEs). Manual compliance with the Pillar Two rules involves navigating through complex data challenges, tracking country-specific implementations, and ensuring accurate calculations for various components. In this article, we will explore the difficulties faced in manual compliance and how Orbitax provides a comprehensive solution to these challenges.
Data Challenges and Automation
One of the key hurdles in complying with BEPS Pillar Two is managing vast amounts of data. Identifying data sources and automating the population of this data into calculation and compliance solutions can be time-consuming and error-prone. Orbitax addresses this challenge by organizing all required data into six input templates and offering four primary methods for automating data inputs.
The data automation options provided by Orbitax include API integration, data mapping, data surveys, and the ability to download templates into Excel and upload them into the system. These features streamline data collection and eliminate the tedious manual processes associated with data management.
Country-Specific Implementations and Calculations
A lesser-known aspect of Pillar Two compliance is the need to track and accommodate each country’s unique implementation of the rules. This involves building separate country calculation templates and running multiple calculations concurrently, depending on the specific component of Pillar Two being calculated.
For instance, if the UTPR (Undertaxed Payment Rule) is applied to determine the top-up tax of a low-tax jurisdiction, and multiple countries share the UTPR, each country’s calculator must run concurrently. The calculation of each jurisdiction’s share of the top-up tax is based on its individual implementation of the Pillar Two rules. Consequently, tracking local country rules, incorporating them into separate country calculators, and ensuring their concurrent execution require a massive effort an sophisticated technology.
Orbitax simplifies this process by diligently tracking each country’s implementation of the Pillar Two rules, noting any deviations from the OECD guidelines, and building separate country calculators. The solution’s advanced logic allows the templates to be run individually or concurrently, depending on the specific component of Pillar Two being calculated. This ensures accurate calculations and reduces the compliance burden on MNEs.
Complex Calculations and Recalculations
Calculating Pillar Two taxes becomes even more intricate due to entity changes that occur throughout the year. Entity status alterations for Pillar Two purposes may necessitate recalculations at multiple points during the year. Additionally, prior-year adjustments impact the current calculations, requiring recalculations spanning back to previous years.
Orbitax understands these complexities and provides a robust solution to handle recalculations effectively. The platform enables MNEs to make entity changes and initiates recalculations seamlessly. This feature ensures accurate and up-to-date Pillar Two calculations throughout the year.
Additional Compliance Obligations and Orbitax’s Solution
Compliance filing requirements for Pillar Two extend beyond the calculations themselves. MNEs must also submit the Globe Information Return, country-specific notifications, separate local filings for the QDMTT (Qualified Derivatives and Measurement Tools), supplemental returns, and make actual payments for the top-up tax.
Orbitax, with its proven track record in global filings such as CBC (Country-by-Country) and DAC6 (Directive on Administrative Cooperation), offers comprehensive support for MNEs in complying with Pillar Two globally. The platform facilitates e-filing where available, streamlining the compliance process and ensuring accurate and timely submissions.
STTR (Minimum Tax on Transactions)
The other crucial component of Pillar Two is the STTR, which involves the minimum tax on transactions. The STTR applies to interest, royalties, services and a defined set of other payments made between connected companies.
Orbitax’s Global Minimum Tax (GMT) solution is already equipped to populate the required rates for calculating STTR taxes and will support STTR compliance obligations.
Automated, repeatable processes
As described above, the global nature of the OECD BEPS Pillar Two rules leads to inter-dependencies of multiple-country calculations. In addition to this a significant number of internal and external stakeholders are involved in the end-to-end process. Documenting and executing all steps and sign offs each reporting / compliance cycle will be more challenging than with any other existing tax process. A structured and repeatable process is key and any task in the process that can be automated will help alleviate these new reporting and compliance obligations.
Orbitax Executable Actions Tool (E.A.T.) is an intelligent workflow solution that allows you to design and automate your global minimum tax processes and is fully integrated with the GMT calculations.
Conclusion
Manual compliance of BEPS Pillar Two is a challenging endeavor due to the complexities involved in data management, country-specific implementations, and
executing accurate calculations. Orbitax provides a comprehensive solution that addresses these difficulties. With its advanced data and process automation, country specific implementation tracking, and powerful local calculation capabilities, Orbitax simplifies Pillar Two compliance for MNEs, ensuring accuracy, efficiency, and global compliance.
Stay ahead of the changing tax landscape with Orbitax as your trusted partner in tax technology solutions. Download the PDF version of this blog including an easy to read summary table to learn more and visit our website for further information.