The OECD’s BEPS 2.0 Pillar Two is dramatically changing the international tax landscape, creating reporting and compliance challenges for multinational enterprises.
The Inclusive Framework on Base Erosion and Profit Shifting (BEPS 2.0), introduced by the Organisation for Economic Co-operation and Development (OECD), seeks to ensure that income is taxed at an appropriate rate and that this tax is paid. To achieve this, along with a new global minimum tax of at least 15%, several complicated mechanisms have been introduced, requiring substantial new forms of financial data that tax departments may not currently have access to. In the process, BEPS 2.0 also significantly increases the risk of double taxation.
In this fluid environment, businesses are increasingly seeking transfer pricing predictability. A more proactive approach is now necessary.
The EY 2024 International Tax and Transfer Pricing Survey, which recorded the views of 1,000 transfer pricing professionals around the globe, shows that 84% of respondents believe their organizations risk double taxation due to recent global tax reforms. With more than 50 jurisdictions worldwide currently in the process of implementing the new rules, this risk is real.
This comes at a time when organizations are already facing challenges and adjusting their operational strategies to deal with supply chain risk and meet their climate ambitions; 42% of respondents report that their organizations have relocated production from one jurisdiction to another in the last three years because of geopolitical issues.
In this fluid environment, businesses are increasingly seeking transfer pricing predictability. In the not-too-distant past, companies preferred to accept a level of risk and deal with the outcomes of audits by tax authorities at a later stage. Today, such an approach not only raises the prospects of double taxation but also poses too many risks that impact significant business decisions, including capital outlays. A more proactive approach is therefore necessary; it is no coincidence, according to our survey, that interest in advance pricing agreements (APAs) and dispute resolution programs offered by tax administrations is surging.
A second consequence of the recent reforms and requirements is the need to collect, standardize, and effectively analyze vast amounts of data, to have a clear, defendable, and easily understood position. Intercompany data are, by nature, large and complex, and aggregating such data from multiple sources is a major challenge. This cannot be dealt with by adding more people to the tax function, but by heavily investing in emerging technologies—GenAI in particular. Automation will allow companies to better understand their data and free up tax professionals to direct their creative energy to high value processes.
The third, and possibly most far-reaching consequence of the reforms, is that transfer pricing executives will henceforth need to be more connected with the rest of the business in order to have a more strategic role in their organizations. They will be required to advise on key business decisions that affect profits and losses and balance sheets. Gaining more certainty around transfer pricing and tax matters in general, they will be in a better position to help the business react to growing economic and geopolitical disturbances, adding more value in the process.
