With the Pillar 2 rules, the complexity in global tax compliance will increase immensely for multinational groups. The rules include understanding regulations in many jurisdictions, data collection, performing and processing calculations, understanding accounting treatments, adjusting for changes in prior periods, and keeping track of reorganizations. A specific filing of Pillar 2 calculation returns and notifications is introduced.
System support will be essential to ensure compliance. Data likely needs to be retrieved from different sources to make the calculations and file special returns.
We see four main areas where a multinational group needs to spend time on system support.
The new rules imply that the group must have control of data concerning entities and PE’s and changes in ownership (entity management data).
In determining the size of taxes paid, the relevant income, substance-based investment data, treatment of certain local country credits, and other relevant data require data collection on a jurisdictional and entity level.
Data needed for filing and conversion of data into the correct filing format will require a data conversion tool
In securing that the correct entity pays top-up tax in the proper jurisdictions.
Control and structure of entity data
The new rules imply that the group must have control of data around entities and PE’s and changes in ownership (entity management data). Furthermore, the entity management data should be structured to be used automatically in the different calculations and the filing that Pillar 2 requires. Implementing a modern entity management solution that secures that data points needed for Pillar 2 is gathered and structured efficiently will facilitate your process.
Determining the size of taxes paid, the relevant income, substance-based investment data, treatment of certain local country credits, and other relevant data require data collection on a jurisdictional and entity level.
In some cases, data may be retrieved from the group accounts, but data on an entity level is often not easily retrieved in many groups. The data collection challenge and the definition of taxes and income imply that groups should investigate where to find the needed data and its quality. After that, a decision can be made to make adjustments to align with the rules. Read more here.
Since these calculations require data that is partly available centrally and central decisions have to be made as part of the calculation process (safe harbours, selections, accounting treatment, among others), it won’t be easy to delegate the calculations to local people. Instead, multinational groups face a central data collection process of local data that needs to be aligned with central data collection, central decision-making, and calculation processes.
This complex process also means that groups with little or no minimum tax liability may find themselves burdened with the complexities of data collection and reporting.
Data needed for filing and conversion of the data
Filing data likely requires converting it into the correct filing format, which will require a system tool. The conversion should support filing Pillar 2 calculations and secure that notifications are made in jurisdictions where the return is not filed.
Top-up tax paid in the right entity
Depending on the group structure and how the Pillar 2 regulations will be implemented in each jurisdiction, a multinational group needs to secure that the top-up tax calculated is paid in the correct entity.
Since we envisage that there will be several jurisdictions opting for a domestic top-up tax and that all jurisdictions will not implement the regulations simultaneously, there is a need for central control. Such control should ensure paying the correct amount on time irrespective of where it is paid. At the same time, the central calculations imply a need for central input to local companies regarding the size of tax paid.
The Pillar 2 regulations are complex, with many uncertainties. We are still waiting for the safe harbor rules, commentaries, filing requirements, and local legislation. When this information becomes available, we expect increased clarity on many details.
Blika has an integrated solution that can manage the data collection needed for Pillar 2. At the same time, we have vast experience in international tax law and how to facilitate required processes in a multinational group with the help of system support. We are at the moment in discussion with all our customers to evaluate a best practice solution concerning the Pillar 2 regulations. If you want to keep yourself updated regarding how your peers in the market consider approaching this complex area, please reach out to us for a discussion.
Digitalization of head office functions – what does it mean? Join us for a digital meeting and we will talk about your company’s needs and where you can start a digitalization journey with all of your group’s head office data.
If you are responsible for taxes in a multinational group, you will most certainly have thought about how a tax technology solution could support your tax function.
The basis is to support automation of data gathering in your organization in secure and efficient workflows and with full control of what every reporting person should perform on a timely basis.
You must be able to analyze the information in tables, reports and in an efficient analysis tool, regarding both current and historical data. Flexibility is key since a solution must handle processes that are centralized or decentralized.