BEPS Tax Technical
The interlocking rule under GloBE that imposes Top-up tax through a denial of deductions or another adjustment if the lower-tax income of an entity in the MNE group is not subject to Top-up tax under an IIR.
What is the Under Taxed Payment Rule?
or
What is UTPR?
This phase of "risk-based" approaches for P2 readiness includes:
•Performing a rapid readiness assessment.
•Evaluating the application of transitional CbCR safe harbor rules.
•Performing GloBE technical risk assessment and prepare high-level ETR calculation.
•Identify data, systems and process gaps and complete workshops with key stakeholders.
•Define implementation plan and action items
What is the Assessment phase.
Two Part Question:
The FASB concluded that the GloBE minimum tax is an AMT under ASC 740. Based on this, GloBE top-up tax should be recognized (when?) and deferred taxes for GloBE temporary differences (Choose one: are/are not) recognized for the estimated future effects of the minimum tax.
-What is "in the period it arises"
-What is "are not"
Practical Applications 1, Slide 28
What years are covered within the transition period?
Calendar years 2024, 2025, 2026
True or False - EY GloBE Modeling tool is an excel-based model on the OECD model rules
True
A Parent Entity that owns an Ownership Interest in a Low-Taxed Constituent Entity indirectly through an Intermediate Parent Entity or a Partially-Owned Parent Entity that is not eligible for an exclusion from the IIR under Article 2.1.3 or 2.1.5 shall [Increase/Reduce (pick one)] its allocable share of a Top-up Tax of the Low-Taxed Constituent Entity in accordance with Article 2.3.2. (50/50-Type)
What is reduce?
Article 2.3. IIR Offset Mechanism
-2.3.1
This software-enabled management solution utilizes transactional data and operational processes.
Typical activities of this system include:
-Finance
-Supply Chain Management
-Workforce & HR Management
What is an ERP (Enterprise Resource Planning) system?
This SEC Regulation, item 303 requires the disclosure in a registrants MD&A of prospective information that is reasonably likely to have a material impact.
What is Regulation S-K?
Practical Applications 1, Slide 29
Do you need to include deferred taxes with the transitional Safe Harbor?
Yes / True
Which is not part of the detailed impact assessment?
a. Run the calculations
b. Data collection
c. Analyze Options
d. Report Findings
c. Analyze Options
What is the next stage of the Top-up tax calculation:
1) Constituent Entities within Scope
2)GloBE Income
3) Covered Taxes
4) *
What is ETR and Top-up Tax
These are the four primary data sources from which data points used in BEPS P2 are derived not including "Other Data".
1) Financial Data
2) Tax Data
3) HR Data
4) Corporate Data
BEPS Process & Data Part 2, Slide 17
These four primary offerings can provided for our clients regarding BEPS P2
What are: Scoping, Assessment, Design, and Implementation?
Practical Application 1, Slide 6
How Can CbC Report be qualified with Safe Harbor?
It has to be based on qualified financial statements.
How many years does a company need to meet the 750M EUR threshold to qualify for BEPS 2.0?
Companies should meet the revenue targets in 2 of the prior 4 years
These taxes are:
1) Taxes recorded in the financial accounts of a Constituent Entity with respect to its income or profits or its share of the income or profits of a Constituent Entity in which it owns an Ownership Interest;
2) Taxes on distributed profits, deemed profit distributions, and non-business expenses imposed under an Eligible Distribution Tax System
3) Taxes imposed in lieu of a generally applicable corporate income tax
4) Taxes levied by reference to retained earnings and corporate equity, including a Tax on multiple components based on income and equity.
What are Covered Taxes.
Article 4.2. Definition of Covered Taxes
If you are looking to perform high-level comprehensive modelling to understand current state including transitional safe harbor coverage, and potential future state "what if" scenarios, you would leverage what EY technology?
EY GloBE Model
BEPS Process & Data Part 2, Slide 24
Broadly speaking, these two OECD Model Rules and guidance topics may be unclear and subject to varying interpretations:
1) Safe harbor analysis and test
2) GloBE Calculations
This is a two-part test of Total revenue of less than 10M EUR and PBT of less than 1m EUR
What is the de minimis test?
What is TP Flows.
Name three of the 11 adjustments used to determine GloBE Income or Loss.
Chapter 3: Article 3.2.1.A
a) Net Taxes Expense
b) Excluded Dividends
c)Excluded Equity Gain or Loss
d)Included Revaluation Method Gain or Loss
e) Gain or Loss from disposition of assets and liabilities excluded under Article 6.3
f) Asymmetric Foreign Currency Gains/Losses
g) Policy Disallowed Expense
h) Prior Period Erros and Changes in accounting principles
i) Accrued Pension Expense
Name two of the four phases of our risk-based approach.
1. Assessment
2. Planning and Provision readiness
3. Process validation and group provisioning
4. GloBE information reporting and compliance
These two risk factors carry a weighting of 10 (the highest rating) within the scoping phase of our P2 offering.
1. GloBE ETR below 15%
2. Minimum statutory rate below 15%
What are the three mechanics/tests of the Safe Harbor?
De Minimis Test
Simplified ETR Test
Routine Profits Test
How many potential clients are in the West which could need BEPS 2.0 assistance?
1) less than 100
2) between 101 - 500
3) between 501 - 900
4) Over 900
Over 900