Global tax rates are about to change for some companies as the Organization for Economic Cooperation and Development’s (OECD) new global minimum tax inches closer to reality. Organizations subject to the tax will need to pay close attention to the global legislation and focus on collecting and analyzing data in new ways, Marna Ricker, EY’s global chair of tax, told CFO Brew.
The global minimum tax of 15% on the profits of multinational corporations with more than €750 million ($827 million at the time of writing) in financial statement revenue was passed by 136 countries in October 2021 and is set to take effect on January 1, 2024. The agreement is aimed at big multinational corporations like Google, Apple, Pfizer, and Amazon that have established operations in low-tax havens like Ireland.
EY has been surveying tax and finance professionals to gauge how they are navigating the change. Ricker recently spoke with CFO Brew about how finance professionals should be preparing for what she calls “the most significant shift in tax policy we’ve had in a century.”
For the finance professionals who need to be concerned with this, what should they be doing to prepare, particularly on the financial management and the financial reporting side?
We are getting new country legislation at a very rapid pace. As companies are digesting this, the first thing I would tell you is that tracking that legislation is really important. The next thing is, this is a very data-intensive exercise. There’s more than 200 additional data points that need to be collected. This is a financial accounting base for the calculation itself, it’s not the normal income tax calculation.
So there’ll be a handful of things I say: Follow the legislation, make sure you’re getting ahead of the data, get the modeling done, and make sure you’re engaging with the OECD to tell them, “This is what we need to see and hear from you in order to implement this.”
What are organizations telling you about how they are anticipating increased compliance costs?
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So I would say this is anecdotal, I wouldn’t want to say this is survey-based at this point, but I am having probably 10 conversations a week around, “What have you estimated the compliance burden will look like?” And the number has been around 40% for that piece of the work. So [those] departments where they’re really focused on the corporate income taxes, they think that’ll be almost a 40% increase in the workload of that particular group. So therefore, you don’t have 40% capacity in your department. So you’re in a pattern where you’re going to have to not do some things to create capacity for this.
We're seeing a big trend of “We’re not going to try to take this on internally, we’re going to partner ultimately with someone to get that done.”
What are the unexpected surprises that organizations have been telling you about as they prepare for this?
Probably the biggest piece is data. They know what the adjustments are to get from book to tax. We’ve been doing that for years. What they’re now having to look at is: What is the base of this calculation? It’s a modified financial accounting concept, and the level of data they have to pull to arrive at that base for the minimum tax is really, I think, what’s catching people’s attention.
I’d say there’s going to be a window of time that we have to move through to get there. The No. 1 thing that companies want is certainty. They want to create consistency and certainty so they can comply with the laws in a really clear way. But we’re moving into a transition period now over the next two, three years.
It’s difficult for me to say how fast we’ll move through it. But I’d be surprised if we moved through that in less than three years, probably something more like five to seven.—DA