84% of tax professionals fear double taxation as Pillar 2 looms

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As the Organisation for Economic Co-operation and Development (OECD) continues to advance its Pillar 2 legislation, accountants worldwide must prepare their clients for the potential implications.

The legislation, which introduces a global minimum tax of at least 15% for multinational enterprises, aims to limit tax competition and ensure large corporations pay their fair share.

However, the new rules also raise concerns about double taxation and compliance complexities.

Understanding the Pillar 2 framework

The Pillar 2 legislation is part of the OECD’s Global Tax Deal, designed to address the tax challenges of the digitalisation of the economy.

It includes three rules applicable to companies with revenues exceeding €750 million: the income inclusion rule, the under-taxed profits rule, and the subject to tax rule. These rules aim to ensure that multinational corporations pay a minimum level of tax on income arising in each jurisdiction where they operate.

However, the 2024 EY International Tax and Transfer Pricing Survey reveals that 84% of tax professionals fear a moderate or significant risk of double taxation due to global tax reforms.

“Transfer pricing uncertainty has too many downstream impacts on significant business decisions, including capital outlays and the potential for double taxation,” says Tracee Fultz, EY Global Transfer Pricing Leader.

Preparing for compliance and avoiding double taxation

To mitigate the risk of double taxation and ensure compliance with the new rules, businesses are increasingly seeking certainty on their transfer pricing positions.

This is evidenced by a surge in interest in advance pricing agreements (APAs) and dispute resolution programs offered by tax administrations. These proactive approaches allow for more certainty in both transfer pricing disputes and Pillar 2 implementation.

Moreover, standardising data is crucial to achieving certainty with multiple tax authorities.

According to the EY survey, 75% of respondents identified ineffective use of technology as their first or second biggest challenge, while 67% ranked poor data quality as a significant issue. Investments in technology to improve data quality and management can help businesses effectively manage current and anticipated tax controversy.

The road ahead

As the Pillar 2 legislation continues to evolve, accountants must stay abreast of the changes and guide their clients through the complexities of compliance.

By adopting proactive strategies and investing in technology, businesses can navigate the uncertainties of the new tax landscape and mitigate the risk of double taxation.

As the OECD’s Pillar 2 legislation takes shape, the role of accountants in driving transfer pricing certainty and facilitating dispute resolution will be more critical than ever.

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