Pillar Two - Global Minimum Tax

With the decision of the EU directive on the global minimum taxation, all EU member states must transpose the "Pillar Two" regulations into national law by the end of 2023. The regulations, some of which are very complex, require an in-depth examination in order to apply them correctly, to determine the necessary data and to calculate the applicable tax - the so-called "top-up tax".

Our interdisciplinary team of tax, accounting, data, process and IT experts will be happy to help you acquire a detailed understanding of the Pillar Two rules, analyse the impact on your company and work with you to develop a customised approach to ensure your company's future compliance to Pillar Two. We guide you through the following steps:

How do the Pillar Two rules work?

Within Pillar Two projects, one of the biggest challenges is the knowledge of the Pillar Two rules by both the tax and accounting departments - either at the beginning of the project or when rolling out the project.

Top-up tax can be levied either at the level of the so-called "Ultimate Parent Entity" (UPE), i.e. the parent company of the group, or in the country of the companies that are effectively low-taxed (so-called Domestic Top-Up Tax).

In five application steps and through a country-by-country approach, it is to be ensured that an effective minimum taxation of 15% is achieved in each jurisdiction in which one or more group companies and / or permanent establishments are located.

1. The first step is to identify the constituent entities of the group covered by Pillar Two and their role in the minimum taxation (e.g. UPE, Partially owned Parent Entity (PoPE), Intermediated Parent Entity (IPE), Minority owned Parent Entity, Permanent Establishment, Transparent Company, Joint Venture, etc.).
2. The qualifying income or loss for each constituent entity is then determined based on the profit or loss for the year in accordance with the consolidated accounting standard, making Pillar Two-specific adjustments.
3. In the third step, the "covered taxes" of each constituent entity are determined, also by making certain adjustments (in particular taking into account deferred taxes). In the next step, the effective tax rate (ETR) per jurisdiction is calculated by setting the sum of the adjusted covered taxes of all constituent entities in relation to the sum of the qualifying income of all constituent entities for each jurisdiction.
4. The jurisdiction's ETR is then compared with the minimum tax rate of 15% and the top-up tax is calculated, which ensures the minimum tax rate of 15%.
5. When determining the top-up tax, the so-called substance-based income exclusion must be taken into account, which reduces the low-taxed income accordingly.

Are there any simplifications?

Yes, on 20 December 2022, the OECD published three important papers on global minimum taxation. Of outstanding importance for German corporate practice is the Transitional CbCR Safe Harbour, which represents a simplification of the application of the GloBE Model Rules and will come into effect in the introductory phase of Pillar Two. The simplification rules will also find their way into German law via a dynamic reference in the Pillar Two EU Directive to the OECD Safe Harbours.

For the calculation of the Transitional CbCR Safe Harbour we have developed our own calculation tool - the WTS Transitional CbCR Safe Harbour Tool and Dashboard.

For an initial analysis, we only need the latest available CbCR in Excel with a little additional information from the financial statements.

Our service:

Performing an indicative Transitional CbCR Safe Harbour calculation for the 2021 financial year per jurisdiction:

•     De Minimis Test
•     Simplified ETR Test
•     Routine Profits Test
•     Pre- and post-test

Our indicative calculation is based on simplifications and assumptions, which we will explain to you in detail during a pre- and post-test discussion.

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General Timeline*

How we can support your business

Global minimum taxation will pose significant challenges to corporate groups due to the extensive data requirements (for the individual companies/permanent establishments and countries) as well as the complex rules for determining the ETR and the special rules for transparent companies, permanent establishments, joint ventures, Partially owned Parent Entities, restructurings, M&A transactions, etc.

Our Managed Service Concept for Pillar Two 

Thanks to our unique business partnering model whereby our founding member WTS Germany takes over the complete or partial group tax management, we are more familiar with in-house group tax structures than any other tax company. We have pioneered and established one of the most innovative tax advisory concepts on the market. We also apply this special expertise when advising on the subject of Pillar Two. We support our clients with a unique “Managed Service Concept”. This means that we offer an integrated Pillar Two service package from one source, which ranges from planning and control to (IT-)implementation, for companies both headquartered inside and outside of Germany. WTS Germany centrally manages the global tax accounting and tax technology sections and provides the overall project management, whilst the member firms from WTS Global bring dedicated local tax advisory. The “Managed Service Concept” is a joint endeavour between WTS Germany and WTS Global which allows companies to entrust the complete Pillar Two project to an experienced trusted advisor. 

WTS Global provides full country coverage for Pillar Two 

With representation in over 100 countries WTS Global is ideally positioned to smoothly coordinate Pillar Two projects across the globe for multinational companies at headquarter and local level. As all member firms of WTS Global deliberately refrain from conducting annual audits, we can rule out any conflict with the Financial Market Integrity Strengthening Act (FISG) and can furthermore - if desired - serve our clients free of conflict in a long-term partnership. The member companies of WTS Global focus exclusively on tax advisory services. In terms of the implementation of the highly complex Pillar Two regulations for the companies concerned, it is such a long-standing trusted relationship that provides stability and planning security.

With our CEO Wim Wuyts, who for many years was Global Head of Tax of a multinational company, we can ensure smooth coordination between WTS Germany and WTS Global in all centrally managed Pillar Two projects.

Through the innovative training concept of the WTS Global Academy we provide top-notch technical trainings related to Pillar Two for all member firms and clients.

We look forward to hearing from you in order to answer any questions you may have, explain our consulting approach in detail, and work with you to develop a customised approach for your business.