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BEPS Best Practices: A Quick Guide

insightsoftware -
November 8, 2022

insightsoftware is a global provider of reporting, analytics, and performance management solutions, empowering organizations to unlock business data and transform the way finance and data teams operate.

Beps Best Practices A Quick Guide

If your company operates in more than one country or region, then you are probably already aware of BEPS 2.0, the OECD framework for global taxation that will change the way global organizations allocate profits among the group companies they control. Adoption is set to begin in 2023, so the time to prepare is now.

BEPS: A Brief Primer

BEPS stands for “Base Erosion and Profit Shifting.” It arose out of discussions that began under the aegis of the Organization for Economic Co-operation and Development (OECD). The BEPS framework aims to address the challenges of operating in an increasingly digitized economy, as well as to mitigate the problem of aggressive tax avoidance by companies shifting profits to low-tax jurisdictions.

Although the OECD has no formal taxing authority in any jurisdiction, many member countries have committed to adopt the guidelines in the BEPS framework. In doing so, BEPS will move toward being a de facto global model for taxing multinational entities (MNEs).

BEPS consists primarily of two “pillars.” BEPS Pillar One allocates tax liability across various jurisdictions based on the business activities that take place in each country. With increasing digitization of the economy, the concept of nexus is less meaningful than it has been in the past. BEPS aims to transition to profit allocation based on where a company’s goods or services are consumed. Pillar One will initially only apply to companies with global revenues that exceed €20 billion, although that threshold will diminish over time.

BEPS Pillar Two will affect far more companies, including any MNE with annual revenues of €750 million or more. In effect, Pillar Two establishes a de facto global minimum tax rate of 15%. If a company’s effective tax rate for any jurisdiction falls below 15%, BEPS would require a 15% minimum, thereby disincentivizing profit shifting.

How to Prepare for BEPS in 2023 and Beyond

BEPS Pillar Two is slated for rollout beginning in 2023. It will impose an array of new data gathering, calculation, and reporting requirements on global businesses. Finance teams must evaluate their current systems to determine whether they offer the appropriate support to meet new requirements now.

Global companies need to estimate the impact of the new tax legislation prompted by BEPS, and should plan to include statements in their financial reports starting in Q1 of 2023 at the latest.

The calculations required under BEPS will be similar to the tax reporting requirements already in place, but not identical. Finance teams and tax specialists must align reporting and data analytics to meet this challenge.

Going forward, all tax calculations and backup needs to be digitally and securely stored, capable of being easily retrieved to support future calculations and potential tax audits. This exerts even greater pressure on corporate tax teams already stretched quite thin.

Fortunately, technology provides a solution to these challenges by unifying tax provisioning, forecasting, country by country reporting, operational transfer pricing, and BEPS Pillar Two calculations. The best tax management software for multinational companies offers a single source of truth in which all of these calculations are maintained consistently and accurately.

When these functions are handled in separate silos, there is a high likelihood that inconsistencies will emerge across these various tax functions. With a fully integrated solution, data flows seamlessly from one calculation to the next, ensuring that organizations can reconcile the numbers across multiple reports and data sources.

Navigating Pillar Two: A discussion with insightsoftware and Deloitte

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Today, many companies rely on manual data dumps and complex spreadsheets to manage this information. That practice is very labor-intensive and highly prone to introducing errors.

Longview Tax from insightsoftware improves tax reporting and forecasting across your enterprise by replacing disconnected systems, manual spreadsheets, and error-prone email communications with a single source of truth, purpose-built for centralized management of corporate tax functions. By bringing together tax provisioning, forecasting, country by country reporting, and analytics, corporate tax teams can save time, increase accuracy, and dramatically reduce compliance risks.

Longview Transfer Pricing is a companion product to Longview Tax. It helps global companies gain control and confidence over transfer pricing with automation, accuracy, and greater visibility.

In many organizations, decision makers have limited visibility into their company’s effective tax rate (ETR) until it’s too late to do anything about it. When BEPS goes into effect in 2023, that lack of visibility will become even more of a liability. Companies that want to clearly understand their options should put systems in place as soon as possible to reap the benefits of smart corporate tax planning strategies next year.

Longview is developing out-of-the-box BEPS Pillar Two capabilities to support modeling, accrual entries for corporate financial statements, and enhanced reporting to address the changes brought about by BEPS. As OECD requirements surrounding the BEPS framework evolve, insightsoftware will continue to update and enhance our software to ensure a smooth transition for our customers.

Together, Longview Tax and Longview Transfer Pricing provide a critical unified view across your entire organization, integrating with any consolidation or ERP system to extract up-to-date information automatically. Longview saves valuable time and resources because it eliminates the need to manage data manually, consolidate information from multiple companies into spreadsheets, or refresh static information with new data periodically.

Next Steps to Prepare for BEPS 2.0

Many of the world’s leading MNEs are using Longview Tax and Longview Transfer Pricing to ensure a smooth transition under the new global tax framework created by BEPS. If you would like to learn more about Longview Tax and Longview Transfer Pricing, please reach out to our team of experts at insightsoftware. Contact us today for a free demo.

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See how companies are making tax a strategic function while cutting their close timing by 50% in their first year using Longview.