Minimum corporate tax rate can have major implications

Companies have to prepare proactively

A significant number of Dutch companies are not yet preparing for the introduction of a global minimum corporate tax rate of fifteen per cent in 2023. This can be concluded from the results of the 25th CEO Survey, which PwC recently published. According to PwC experts Edwin Visser and Maarten de Wilde, companies need to prepare themselves because this minimum rate can have major implications for companies that operate internationally.

Many companies not yet preparing for minimum corporate income tax rate 

One of the most striking Dutch results is that 46 per cent indicate that they have not (yet) taken measures to prepare for the introduction of a global minimum corporate income tax rate of fifteen per cent. ‘CEOs from other countries, such as Spain and the United States, seem to be more ready’, says De Wilde. ‘This minimum rate will apply from 2023 to companies operating internationally with a (consolidated) turnover of at least 750 million euros and is the result of agreements made within the OECD.’

A two-pillar solution

In October, 136 countries within the OECD concluded an agreement with the aim of combating tax competition and avoidance by internationally operating companies. This agreement consists of two pillars. Pillar 1 concerns a redistribution of the tax base for corporate income tax, as a result of which very large companies with a turnover above 20 billion euros will pay income tax in countries where they sell products and services without having a physical establishment there. Pillar 2 relates to the introduction of the minimum tax rate of fifteen per cent.

Minimum rate changes tax landscape drastically 

Countries will likely not want to leave money on the table, so they will consider self-taxing corporate income tax at a rate of fifteen per cent for companies with global consolidated revenue of more than 750 million euros. The EU explicitly chooses that option.

Pillar 2 will thus drastically change the national and international tax landscape and make the (international) corporate tax rules even more complex than they already are. Moreover, the minimum rate will dramatically increase the compliance burden of multinational companies. 

‘From a business perspective, the global minimum tax will increase the cost of capital and affect investment decisions’, says De Wilde. ‘Companies will need to invest in adapting their ERP and financial systems to extract data in order to be able to demonstrate that the threshold of a fifteen per cent effective tax rate has been met at the national level.’

CEOs, take action 

PwCs publication 'Pillar 2 and the consequences for Dutch business' recommends companies to proactively prepare for the consequences of Pillar 2. Crucial in assessing the impact are questions such as: what does Pillar 2 mean for my company in terms of financial impact, required resources, availability of data, adaptation of systems and communication with stakeholders.

‘A next step could be to integrate the compliance and reporting requirements for Pillar 2 into the current compliance and reporting processes in the business organization’, says Visser. ‘This requires commitment and involvement from various departments within the company, not just the tax department. Tax used to be the domain of the tax director, but the topic is now also high on the agenda in boardrooms, as the CEO Survey indicates. So it is also up to CEOs to take action and get their companies moving.’