Global Minimum Tax - Pillar Two Top-up Tax

BEPS 2.0-Pillar Two introduces global minimum tax rules for accounting periods commencing on or after 31 December 2023. These rules apply to multinational enterprises (MNEs) with consolidated revenues of at least €750 million. The minimum tax rate is initially set at 15% and the resulting Pillar Two ‘top-up tax’ will be payable either by the ultimate parent entity or an intermediate parent within the group structure. Some territories, including the UK, collect the top-up tax locally through a domestic minimum tax regime.

These rules form one of the key outcomes of the Global Anti-Base Erosion (GloBE) project undertaken by the Organisation for Economic Cooperation and Development over the past decade.

A Global Tax Matter

Pillar Two is an integral part of the global tax strategy for a multinational business, impacting and interacting with domestic tax compliance, financial reporting and international tax matters such as transfer pricing and country-by-country reporting (CbCR). 

Businesses are required to undertake data-gathering and reporting preparation in the lead-up to 2026 when the first Pillar Two return will be due.

It is important to understand how each group's broader international tax approach interacts with the legislative provisions of Pillar Two rules which may vary across jurisdictions.

Where Should You Be Now? 

Multinational businesses that fall within the scope of Pillar Two rules must be ready to calculate their top-up tax and meet their compliance and reporting obligations across the jurisdictions in which they operate. 

Key activities businesses should undertake in the coming months include:

Forecasting the impact of Pillar Two

• Identifying the relevant group entities and jurisdictions, determining whether transitional safe harbours apply, and assessing potential top-up tax and reporting exposure.
• Assisting with the calculation of an appropriate current tax provision for potential top-up tax payable.

Ensuring a robust audit position

• Preparing or reviewing transitional safe harbour calculations, quantifying potential expected top-up tax where safe harbours may not apply and providing recommended disclosures in financial statements. 

A review of country-by-country reporting

• Assessing CbCR ‘qualifying’ status for the purpose of applying Pillar Two transitional safe harbours to provide assurance to groups and their auditors that these provisions can be confidently applied.

Governance and project planning 

• Determining which internal and external stakeholders will be responsible for providing data, supervising and signing off the final Pillar Two return and local filings.
• Coordinating the preparation and filing schedules for notifications, local returns and the GloBE return across multiple territories, with the option to monitor through technology solutions.

Resolving complex issues

• Understanding the application of the Pillar Two rules to complex issues impacted by accounting and tax treatment, for example, acquisitions and demergers, entry into new tax incentive regimes and the treatment of transfer pricing adjustments. 

A Multi-Faceted Practical Solution

RSM’s Pillar Two team comprises tax advisors with expertise in international tax and transfer pricing. Our combination of skills makes us well-positioned to help multinational businesses address Pillar Two through a practical and holistic approach that breaks down the journey to completing and filing Pillar Two returns into manageable steps.

We support a wide range of multinational clients across diverse sectors and at different stages of their Pillar Two journey, coordinating across disciplines and jurisdictions to ensure each client’s approach is tailored to their tax risk profile, internal resources and systems or technology capabilities.