Pillar 2 compliance is essential, demanding intricate data management across jurisdictions and offering an opportunity for tax teams to improve processes with technology. Prompt action and strategic tech adoption are key to navigating these complex requirements effectively. With the onset of BEPS Pillar 2 regulations effective from January 1, 2024, businesses worldwide are facing a new set of compliance challenges and opportunities. This regulation, aimed at ensuring that multinational enterprises pay a minimum level of tax, necessitates a comprehensive understanding and strategic approach to data management and compliance processes.

This article is written by Juan Dosal and Ariel Hou. Juan ([email protected]), Ariel ([email protected]) are members of the International Service Practice team of RSM Netherlands and focus on global tax policy.

The Challenge of Data and Compliance

The BEPS Pillar 2 framework introduces a multifaceted compliance obligation that requires detailed data collection and analysis at an unprecedented scale. Organizations must navigate the complexities of gathering entity-level data, conducting effective tax rate calculations across jurisdictions, and managing the allocation and payment of top-up taxes. This process is complicated by the need to source data from beyond the immediate tax team, encompassing a wider range of internal and external information sources. In this regard, efficiency is key, not only in gathering  and analysing data but also in integrating technological solutions that can handle the granularity and scale of the data required for each entity at each jurisdiction to ensure compliance and optimize the overall tax strategy.

Expert Insights and Technological Solutions

What is vital for Pillar 2 calculations is the importance of collecting detailed entity and provision information. This entails the integration of various data points, including entity lists, trial balances, and global tax provision calculations. In this respect the level of complexity for preparing the Global Information Return (GIR) is high, as there are 268 data points in the GIR to determine the GloBE Income or Loss, meaning that 268 data points must be sourced / identified for preparing the GIR form.

The complexity is further heightened by the need for this data to be accurate, comprehensive, and timely, needless to mention the standardization procedure for each entity within the group at each jurisdiction. Technology emerges as a crucial ally in this context, offering platforms that integrate Pillar 2 requirements with existing tax and financial systems. These solutions provide the flexibility to incorporate data from diverse sources, ensuring that the calculations are both accurate and consistent with global reporting standards.

Strategic Steps for Effective Compliance

To effectively navigate BEPS Pillar 2 compliance, organizations must first undertake a comprehensive impact assessment, that meticulously identifies and evaluates the essential data points needed for the comprehensive end-to-end calculation process. This assessment is foundational in understanding the scope and depth of the organization's current data landscape, pinpointing where data resides, identifying gaps, and establishing a baseline for subsequent actions.

A critical component of this process is the strategic alignment of Country-by-Country Reporting (CbCR) with the Pillar 2 requirements. The significance of CbCR in this context cannot be overstated. Originally designed to enhance transparency in the tax reporting landscape, CbCR provides a template that already encapsulates detailed financial information on a per-country basis, making it a rich data source for Pillar 2 computations.

The integration of CbCR into Pillar 2 compliance is not merely a matter of convenience; it represents a strategic leveraging of existing resources to address new compliance challenges. Subsequently, by aligning these two reporting frameworks, organizations can avoid the redundancy of data collection, ensuring that the effort invested in CbCR can be extended to meet the demands of Pillar 2. This synergy is particularly advantageous, as it not only streamlines data gathering and analysis but also fosters a more cohesive and efficient approach to meeting the global tax compliance mandates.

To sum up, through this alignment, organizations can optimize their tax reporting processes, enhance compliance accuracy, and effectively navigate the complexities introduced by the BEPS Pillar 2 framework.

Forward Thinking

As regulations evolve and become more defined, organizations will need to stay agile, continuously adapting their strategies and systems to meet new requirements. Engaging with non-tax stakeholders, leveraging technology for process automation, and maintaining a clear understanding of the compliance landscape are pivotal steps in staying ahead in the Pillar 2 compliance journey. In conclusion, while the challenges are significant, a well-structured approach that integrates data management, technology solutions, and strategic planning can transform BEPS Pillar 2 compliance from a daunting task into an opportunity for enhancing global tax governance and operational efficiency.

Jurisdictions, especially the European member states are implementing BEPS Pillar 2. Additionally, Many Multinational enterprises have already received official letters (at least) from the Dutch tax authorities indicating they are expected to comply with Pillar 2 as of 2024. This highlighted the need for large MNEs to prepare promptly. The complex requirements of Pillar 2 demand considerable preparation time. Delaying could lead to risks, including penalties and reputational harm. Starting as soon as possible ensures you can handle the complexities, align your processes, and comply with global standards, positioning your business strategically in the evolving tax landscape.

RSM is a thought leader in the field of International Tax and Global Tax Governance. We offer frequent insights through training and sharing of thought leadership that is based on a detailed knowledge of EU Tax Directives, OECD Transfer Pricing Guidelines, OECD Guidance on BEPS initiatives (such as Pillar I and II), and practical applications in working with our customers. If you want to know more, please contact one of our consultants.