Revenues From Two-Pillar Plan Higher Than Expected, OECD Estimates
The Organization for Economic Cooperation and Development has adjusted upwards revenue estimates from its international tax framework. Comprised of what are known as two “pillars,” the OECD’s cross-border tax model, which has been agreed upon by 140 countries, is projected to yield significantly more revenue than initially forecasted in its Economic Impact Assessment released October 2020. The first pillar applies to multinational enterprises (MNEs) with revenues exceeding €20 billion and have profitability over 10% and allocates 25% of excessive profit to market jurisdictions where the MNE has quantitative nexus. Pillar Two serves as a 15% book minimum tax based on financial statements. According to new OECD analysis shared at a January 18 webinar, Pillar One annual global tax revenue gains, based on 2021 data, are expected to be $13-36 billion. Pillar Two annual revenue gains have been revised from $150 billion to 220 billion, accounting for 9% of global corporate income tax revenues.
The OECD used five data matrixes, each with their own specific purpose and combination of information sources. These covered the areas of corporate profit, turnover, assets, employees, and payroll. A comprehensive economic impact analysis and accompanying methodology report will be made available “in the coming months,” according to an OECD press release.
McGuire Sponsel will continue to monitor this situation and provide timely updates as appropriate. If you have clients with operations outside the US, please reach out to us to discuss how we can assist with any transfer pricing and consulting opportunities to lower the global effective tax rate under current tax law and potential revisions as discussed above.
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Jason Rauhe, CPA is a Principal in the firm’s Global Business Services practice and is responsible for assisting clients and adding depth in all areas of the firm’s international tax consulting services including transfer pricing, and the firm’s compliance expertise.
Rauhe previously served as Director of International Tax at a Top 100 CPA Firm, where he was responsible for the firm’s international tax division and major industry alliance networks.