The OECD BEPS 2.0 project consists of two pillars. Pillar One applies to the biggest and most profitable multinational enterprises and reallocates part of their profit and taxing rights to the countries where they sell their products and services. Pillar Two introduces a global minimum corporate tax of 15% to prevent tax avoidance and base erosion. The U.S. has not yet adopted the OECD project into its tax system, but it will still impact U.S. multinational businesses that operate abroad. Practitioners need to know about the OECD project because it is a major change in the international tax system that will affect many multinational enterprises and their tax compliance. AICPA resources OECD BEPS 2.0 - Pillar One and Pillar Two — The OECD BEPS 2.0 sets out to provide a tax reform framework allowing for more transparency in the global tax environment. Advocacy Comments to Treasury on tax issues of OECD Pillar Two, Feb. 14, 2024 Comments to Treasury on Amount B of OECD Pillar One, Dec. 12, 2023 Other resources OECD BEPS – Inclusive Framework on Base Erosion and Profit Sharing Transcript April Walker: Hello, everyone, and welcome to the AICPA's Tax Section Odyssey podcast, where we offer thought leadership on all things tax facing the profession. I'm April Walker, a Lead Manager from the Tax Section, and I'm here today with my friend and colleague, Henry Grzes. He's a colleague here with me on the AICPA's Tax Practice & Ethics team. Welcome back, Henry. Henry Grzes: Thanks April. Happy to be back. Walker: Wonderful. The aim and goal of this podcast is definitely not to teach you everything you ever wanted to know about OECD and Pillar One and Pillar Two because we certainly couldn't do that on this podcast. But, we would like to talk about why you need to care, why you do need to know high level what this framework is about, and I'm going to try to listen also because I know when I start hearing this, I definitely tend to turn off my listening ears. Everyone turn on your listening ears, as they say in preschool, and let's get going. First, I've been saying and I've said it a couple of times, and I know that we as accountants love acronyms, OECD. Who is this, and what are their goals? Grzes: We're going to start basic, as you said. OECD stands for the Organization for Economic Co-operation and Development. Now from their website, they describe themselves as an international organization that works to build better policies which result in better lives. Their goal is to shape policies that foster prosperity, equality, opportunity, and well-being for us all. Together with governments and policymakers and citizens, they work on establishing evidence-based international standards and finding solutions to a range of social, economic, and environmental challenges. These include economic performance, creating jobs to foster strong education, and fighting international tax evasion and international standard setting. The goal of the OECD project we're talking about today is to reform the international tax system and provide a more transparent environment for tax. The official title of the project is referred to as the OECD BEPS 2.0, Pillar One and Pillar Two. By the way, BEPS stands for Base Erosion and Profit Shifting. Walker: Thanks, Henry. I think we can all agree that transparent tax environment sounds like a good goal, but when I start hearing about pillars, I think about building buildings, but that's not what this is about at all. So tell me more about Pillar One and Pillar Two. Grzes: Each pillar addresses a different gap in the existing rules that allow multinational enterprises, also referred to as MNEs, to avoid paying taxes. First, Pillar One applies to the biggest and most profitable MNEs and reallocates part of their profit and taxing rights to the countries where they sell their products and provide their services. In effect, where their consumers are. It deals with transfer pricing issues and the allocation of profits and adopts new nexus and profit allocation rules with the objective of assigning a greater share of taxing rights over global business income to market countries. Without these rules, these companies can earn significant profits in a market without paying much tax there. It is a plan to reallocate some taxing rights to countries based on where their customers are located. Pillar One originally targeted large, profitable digital companies, but now applies to most large profitable multinationals. The G20 OECD project on addressing the taxation of digital economy began in 2019, building on the final reports issued in 2015 in the earlier projects on BEPS. Pillar Two was released in December 2021, and when adopted, would apply to a much larger group of MNEs with global annual revenue of 750 million EUR. These companies would be subject to a global minimum corporate tax. With these new rules, companies organizing their affairs in a way that their profits, in a given ...
