Global businesses prepare for higher taxes as implementation of the OECD’s tax reforms loom

Global businesses prepare for higher taxes as implementation of the OECD’s tax reforms loom

More than half (52%) of global businesses surveyed by BDO say they expect their tax liabilities to rise in the coming year, while only 15% say they will go down.

The findings, from BDO’s Global Tax Outlook 2023, reflect the views of 630 senior tax professionals from 48 countries representing 11 industry sectors.  

The upward trend in business taxation has resulted, in part, from high levels of government intervention during the COVID-19 pandemic as well as the subsequent economic shocks which have put additional pressure on public finances.

This trend has also been evident in the UK where the headline rate of corporation tax rose from 19% to 25% in April 2023. This has contributed to a 16% year-on-year rise in business taxes so far this year, according to the latest data from HMRC.

One particular task facing tax professionals is the implementation of the OECD’s Two Pillar framework. Indeed, 63% of business respondents globally said implementation of the policy would present a challenge for them in the coming year.

The OECD’s reforms, which now involve 145 countries, are a response to the challenges of digitalisation and when implemented will fundamentally change the way businesses are taxed internationally. 

Pillar One is designed to re-allocate a portion of the global profits of large multi-national companies to the countries where their products and services are sold. Under Pillar Two, companies with a turnover of over EUR 750 will be subject to a global minimum corporate tax of 15%. 

In the UK, adoption of the multinational and domestic top-up taxes under Pillar Two will begin to affect in-scope groups’ accounting periods beginning on or after 31 December 2023.  

Ross Robertson, international tax partner at BDO in the UK said:

“Given the backdrop of high public spending during the pandemic, and the economic aftershocks from subsequent geopolitical developments, business taxes have risen across many international jurisdictions, including the UK, and this trend looks set to continue.

“Tax professionals worldwide also face having to cope with the additional complexity resulting from the implementation of OECD reforms.

“Complying with the new Pillar Two rules, which come into force at the end of this year in the UK, will pose a significant challenge for many multinational businesses and add to their overall business tax liabilities.

“The immediate concern for businesses with a 31 December year end is whether they can make credible projections for the future impact of Pillar Two to include in their accounts. 

“The Pillar Two rules are complex and assessing the impact will require review of a vast number of datapoints. Failure to address these calculations now could lead to delays in audit timelines and associated cost increases. In certain circumstances, if the auditors have cause to believe the impact is material, they may seek to qualify the accounts absent sufficient calculations by the business.”

Taken together, the multinational top-up tax, the domestic minimum tax and the undertaxed profits rule, all of which come under the Pillar Two legislation, are expected to raise almost £13bn in the UK over the next six years.


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Frank Shepherd
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