The Impact of Pillar 2 on Group HR/Payroll Companies
Centralized HR/Payroll CompaniesMNE's frequently use group payroll and HR functions to streamline their business operations. The benefits in many cases are clear. They maximize efficiency, reduce duplication and data entry, allow group members easy access to consolidated data and make it easier to ensure that key data is up to date.
The Pillar Two GloBE rules raise particular issues for a separate payroll/HR function.
A typical arrangement would be for the HR/payroll function to provide the relevant services for the group and receive arms-length consideration via an intercompany recharge or other such arrangement. This would then be reflected in the financial accounts of the relevant entities as a management recharge cost or income. The centralized HR/payroll function could be siloed and carried out via a separate company or could be part of the activity of another group entity.
In many cases tax administrations would accept payroll costs incurred by a centralized HR/payroll entity being recharged to group members on a reasonable basis such as by reference to the number of employees in each company. For financial accounting purposes, inter-company recharges are reflected on a gross basis (ie the income and costs are separately shown in the accounts rather than being netted off).
The standard Pillar Two GloBE rules would firstly need to be considered in relation to the entity providing the HR/payroll services ie is the company a low-taxed entity for the purposes of the GloBE rules?
Payroll companies are not prime candidates for tax incentives, at least in relation to taxes that are covered taxes for the purposes of the Pillar Two Rules (eg corporate income tax).
Lee is a qualified Chartered Accountant and Chartered Tax Adviser.
A former Senior Tax Analyst at Bloomberg Tax, Lee began his career in
Ernst & Young's Entrepreneurial Services department and has 20 years of international tax planning experience.
Lee's books have been recommended by The Times, The Guardian and The Telegraph.
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