Pillar Two begins to take hold…

By Rashmi Pandya, Macalvins’ COO

Unless your business is making €750 million (£634 million) or more per year, you’re unlikely to have heard of Pillar Two.

At the moment, it’s only affecting businesses with turnovers above that figure, so many of you need not worry about it.

Or so you might think…

The unfortunate reality is, although Pillar Two is targeted at some of the largest global businesses in the world, its potential to trickle down can’t be understated.

But, before we get too in depth, let’s look at what Pillar Two is.

Pillar Two or the “Global Anti-Base Erosion” rule

Pillar Two is a part of the global tax reform initiated by the OECD to ensure that large multinational companies pay a minimum level of tax, regardless of where they are based or operate.

It sets a global minimum corporate tax rate of 15 per cent for companies with annual revenues over €750 million.

This aims to prevent these companies from shifting their profits to low-tax countries to reduce their tax bills, ensuring a fairer tax system worldwide.

Countries like the UK, Canada, the Netherlands, and over 140 others have agreed to enact the policy, so this is hardly a marginal issue.

Why should you care about Pillar Two?

If you own a business that trades internationally or has satellites in other countries, you might be way off the €750 million threshold, but we still think you should keep an eye on the issue.

The moves towards Pillar Two are part of a wider movement to standardise the way international taxes are levied.

This includes increasing calls to implement digital service taxes that would require companies to pay additional taxes for things like social media platforms, cross-border consultancy, and advisory services to businesses abroad.

This is, fundamentally, an opening for increased compliance requirements to sneak into your operations.

If the OECD decides to extend the Pillar Two legislation, or reduce the threshold, it might mean more of your team’s time is taken up filling in forms and working hard to stay compliant with new laws.

It’s also going to take a lot more effort and time to stay up to date with the constant changes.

In short, it’s more work for you and your team.

However, there is a solution, and it involves speaking to your tax adviser!

We’re constantly monitoring the state of international taxation for changes that may affect our clients or provide additional liabilities for global corporations.

This includes every level of operation, from small businesses that occasionally send goods abroad, to those with multi-million liabilities across the globe.

If you require advice or you simply want to stay up to date on taxation matters, we can help.

Get in touch with our team for more information.

Posted in blog, International.