Multinational Corporations Challenged by New Tax Rules
The Base Erosion and Profit Shifting (BEPS) initiative undertaken by the Organization for Economic Co-operation and Development (OECD) was designed to rein in what has been viewed as excessive tax avoidance by multinational corporations (MNCs). Crucially, the OECD does not have legal authority in this matter but provides recommendations to national governments on how to structure tax codes to address profit shifting by restricting tax avoidance and making international tax rates more equitable.
Pillar Two, our focus here, establishes a global minimum tax framework through a set of interlocking rules. This new structure not only complicates the mechanics of tax determination and provision, it also introduces the need for analysis to determine the best ways to allocate revenue and expenses wherever possible. Moreover, forecasting and analysis will be necessary to take taxes into account when making decisions about transfer prices, siting operations, allocating production, choosing investments and determining capital structures as well as all mergers and acquisitions.