Pillar Two tax concern jumps at large multinationals

With a new wave of Pillar Two guidance expected later this year, the global minimum tax continues to raise the concern of most chief tax officers at large multinational organizations. 

Under Pillar Two of the Organization for Economic Cooperation and Development’s Base Erosion and Profit Shifting Project, large multinational corporations will pay a 15% minimum tax in jurisdictions where they operate. In the latest CTO Insights survey of 100 organizations with $1 billion or more in revenue, Big Four firm KPMG found:

• More than half (57%) estimate that their organizations’ additional annual tax liability will be between $1 million and $49 million.
• A majority (82%) of tax executives view Pillar Two as an impending requirement and are actively preparing for its implementation.
• Nearly three-quarters (73%) have already discussed resources and compliance changes with their board.  

The survey would apply to multinationals with at least $750 million in consolidated financial statement revenue. Altogether, about 97% of companies view Pillar Two as a requirement they are preparing for. 
“This is notable, because if you go back a year, that percentage would be much lower,” noted Marcus Heyland, principal at KPMG’s Washington national tax office. “At that time, there was some skepticism as to whether Pillar Two would get off the ground. It’s interesting that that percentage of companies view Pillar Two as a coming requirement.”

“The survey included some questions around what is expected as to the impact of Pillar Two,” he noted. “While 27% of the respondents expect to have no tax liability as a result, the balance of them expect some financial statement impact.” 

In the survey, completed in August 2023, 15% viewed Pillar Two as “a coming requirement but too early to prepare for.” 

As the OECD releases more guidance, BEPS 2.0 implementation moves closer and many leaders are considering staffing, budgeting, and preparing for the rollout. More than two-thirds (69%) of organizations predict a surge in external audit costs related to Pillar Two. With the introduction of undertaxed profits rules, or UTPR, in 2025, companies anticipate a rise in tax liabilities, with more than half (57%) of tax executives estimating that their organizations will be liable for additional annual tax between $1 million and $49 million. Additional liability of $50-$99 million was estimated by 6%, while 9% estimated additional liability of $100-$500 million.

“We wanted to know whether there were enough resources in their tax department to address all of the reporting requirements that Pillar Two brings, so we asked how many thought they needed to hire additional staff to deal with the requirement, and at what level: 57% are considering hiring more at the junior level, 46% will hire additional staff at the manager level and 18% at the director level. Some companies are considering hiring at several levels, so the numbers add up to more than 100%,” Heyland explained. 

“The key point is that companies are considering expanding resources by hiring additional people to help them comply,” he said.

The survey addressed the involvement of third parties in the task, noting that they can play “a crucial role in helping multinationals satisfy reporting and compliance needs while future-proofing data streams.” It noted that some businesses feel a hybrid approach, with a mix of in-house and third-party tools for modeling and tax scenario planning, are most effective.

The survey found that 36% expect to manage the process entirely in-house, while 54% will “cosource” with an outside provider, and 9% will outsource with an existing provider. (The percentages do not add to 100% due to rounding.)

One question that was not a part of the survey is the legislative outlook for Pillar Two in the U.S. 

“The lack of implementation in the U.S. will not slow other countries from implementing their own rules,” said Heyland. “It’s clear that lack of implementation will not impede other countries from implementing their own rules. But the lack of implementation makes compliance more complicated because the GILTI rules have to be addressed in addition to the Pillar Two rules. The degree of complexity is higher for U.S. multinationals than for foreign ones, because they not only have to comply with rules that have already been enacted in the U.S. but also rules that foreign jurisdictions are in the process of implementing.”