The Emergence of Global Minimum Tax: Navigating Internal Control Implications

In the ever-evolving landscape of international taxation, a seismic shift is underway with the introduction of the global minimum tax. Spearheaded by the Organisation for Economic Co-operation and Development (OECD) Base Erosion and Profit Shifting (BEPS) 2.0 Inclusive Framework, this coordinated effort aims to align multinational corporations with a common international tax system, introducing a 15% minimum tax rate for companies with global revenues exceeding €750 million.

As countries race to enact local versions of this regime, with over 30 jurisdictions having already done so, the implications for businesses are far-reaching. The global minimum tax not only reshapes the tax landscape but also necessitates a profound re-evaluation of internal controls – the unsung heroes that safeguard organisational integrity and compliance.

At the core of this transformation lies the need for companies to reassess their tax risk profiles. With countries adopting varying interpretations and timelines, a comprehensive understanding of existing and evolving tax laws is imperative. Internal controls teams must enhance coordination and information-sharing across jurisdictions, particularly for complex calculations like Qualified Domestic Minimum Top-up Tax (QDMTT) and Income Inclusion Rule (IIR).

Moreover, the intricate web of payment processes demands rigorous attention. As affiliates may be responsible for remitting taxes on low-tax earnings, companies must fortify their internal controls for tax payments and internal funding processes. Cross-border movements of funds to satisfy liabilities introduce a new layer of complexity that cannot be overlooked.

Navigating the global minimum tax regime also necessitates a meticulous understanding of legal-entity organisation charts, including the location, ownership structure, and tax nature of each entity. Minority-owned entities, non-equity-owned consolidated entities, and unique structures present additional challenges, underscoring the need for robust processes and controls to track and maintain these organisational charts.

Technology, too, plays a pivotal role in this transformation. Companies must re-evaluate their technology investments, implement data warehouses, and deploy new platforms to calculate the global minimum tax for reporting and compliance processes. Enhancing vendor selection and adapting internal control frameworks to accommodate these changes are essential steps in this journey.

Finally, the global minimum tax regime places unprecedented pressure on tax department budgets and capacity. Companies must assess their talent readiness, invest in developing in-house expertise, and consider co-sourcing or outsourcing options – all while ensuring that internal control environments adapt to these shifts in roles and responsibilities.

As the global minimum tax regime takes shape, organisations must proactively prepare for its far-reaching implications. Internal controls, often overshadowed by strategic objectives, now take centre stage as the linchpin of compliance and organisational integrity. By reassessing tax risks, payment processes, organisational charts, technology readiness, and talent needs, companies can navigate this seismic shift with confidence and fortify their foundations for long-term success in the evolving tax landscape.

At ZRC, our Risk and Control consultants provide cost-effective assessments over the ability for organisation’s existing tools, processes & controls to monitor and address evolving tax regulations.

As part of the assessments, we provide detailed gap analysis highlighting unaddressed compliance risks, areas for improvement related to existing processes and controls, resourcing constraints, data compilation issues, and more, along with our recommendations for remediation. These assessments are proven to reduce the potential for hefty fines and reputational damage while improving the efficiency and effectiveness of the governance, risk, and controls framework.

Ready to fortify your tax strategy? Let’s talk! Contact us today to learn how we can support your business in managing risks, enhancing governance, and implementing robust controls and follow us on LinkedIn to keep up to date.

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