Companies around us with a turnover exceeding SEK 7 billion are working on their report and analysis of Pillar 2.
This is, to say the least, a complicated area, and most companies seek some form of assistance with it. This article introduces BEPS- Pillar 2 and highlights how we at AARO can support our clients.
What are BEPS and Pillar 2?
BEPS stands for Base Erosion and Profit Shifting.
Many companies take advantage of gaps and weaknesses in tax regulations to artificially shift profits to low-tax countries or to erode tax bases through deductible payments, such as interest or royalties.
Pillar 2
BEPS Pillar 2 is a global minimum tax directive under the OECD. The aim is to prevent tax base erosion and profit shifting (BEPS) within multinational enterprises (MNEs) globally.
Affected MNEs must pay a minimum effective tax rate of 15% in each country where they operate (provided that the country has joined BEPS Pillar 2). It is not possible to offset taxes between group companies. MNEs whose effective tax rate falls below the minimum requirement in a given jurisdiction must pay a top-up tax.
Simply put, companies worldwide have become too skilled at using tax regulations to avoid paying taxes, so it has now been decided that they must at least pay 15%.
Who is affected?
Pillar 2 of the OECD requires large multinational enterprises with a consolidated group revenue of over EUR 750 million to be subjected to this rule.
The new regulation is expected to impact approximately 120–130 large Swedish corporate groups and a total of around 13,000 Swedish subsidiaries of multinational enterprises with headquarters outside Sweden.
We estimate that several of AARO’s customers are affected by these rules. The exact number has yet to be determined.
Reporting
All entities affected by Pillar 2 must compare the tax paid in each country with financial information according to IFRS – for example, from AARO – along with additional user inputs to calculate the tax rate. If the tax rate is below 15%, the parent company must pay an additional tax.
For the first three years, companies are allowed to use the information from the Country-by-Country (CbC) Report. This simplifies the process for companies since they have already worked on compiling this information. What will happen after these three years is still unclear, meaning we do not yet know if the simplification rules will remain in place.
Why AARO?
- Calculations under Pillar 2 are based on financial information from AARO.
- For the first three years, companies may use information from their Country-by-Country Report, which we also offer to our customers.
- The financial information used for calculations must be prepared according to IFRS and, in some cases, based on consolidated financial statements – which is our area of expertise.
By Johan Nilsson,
Accounting Expert, AARO Product Management Services
