We have reviewed the data you need to manage to comply with the Pillar 2 process. Below is some information on legal entity data that will be essential to control.
Several new compliance tasks have been introduced that affect the tax department. These tasks require you to control your legal entities and data around the entities to be compliant. CbC, Mandatory disclosure, and Pillar 2 reporting drive the need for entity information in different formats. Since these regulations require you to file data electronically, you will soon need to structure your data to convert it to match the required filing format. Data accuracy is also becoming more critical since non-compliance may result in hefty penalties. With public CbC, your work is at risk of being scrutinized by the media or investors.
Establishing a Pillar 2 process implies that you need to have complete control of legal entity management data in a more extensive (and from timing purposes) more frequent wa.
Essentially you will need to have full control of the following data for each entity:
- Entity name
- Entity address
- Tax identification number (TIN)
- Jurisdiction
- Tax Jurisdiction
- Control of the group’s legal ownership structure
- Consolidation level
- Ownership capital and voting
- External ownership
- Control through agreements
- Weighted ownership (used in calculations)
- Change of ownership – presented with both the previous and new owners; in both cases, ownership shares before and after the change.
- Reflecting external acquisitions and sales of shares
- Reflecting Mergers and liquidations
- Keeping track of internal reorganizations
- Globe status
- Accounting rules used
- Permanent Establishment data
- Joint Venture data
- Flow Through entity data
This data must be updated on a current basis, which underlines the importance of an efficient and secure process for gathering, reviewing, and presenting the data. Since the Pillar 2 calculations will be done for different periods and several times during a period (forecasting, current accounting, annual report calculations, and Pillar 2 reporting), it is crucial that this data is structured in such a way that you easily can find and use the correct data for the right period. This implies that any legal entity management process put in place must be able to support your Pillar 2 process with both current and historical data of your choosing. By implementing an automatic process, you avoid a time-consuming manual process and ensure high quality in your data and calculations.
When we discuss Pillar 2 with multinational companies, we almost always find that they underestimate the complexity of being in control of this data. Furthermore, the tax department seldom has control over the legal entity management process and thus cannot get the correct data in the format it needs.
To summarize, you therefore need to do the following.
- Review if you have the data mentioned above available on a current and historical basis.
- If not, discuss with the owner of your group’s legal entity management data process if they can gather and transfer this data to the tax department’s tax tools in the format needed.
- If they cannot do that, the tax department needs to implement a process and a tool to manage the data collection.
Therefore, the first step on a Pillar 2 compliance journey is to setup a robust and secure process where the tax department has the above data points currently available, which is efficiently transferred to the Pillar 2 solution.
Through the Blika platform, you can implement the Blika legal entity management module. This module will facilitate gathering and ensuring your legal entity data is correct. This data will automatically be fed into your compliance processes in the format you need. The Blika platform will automatically check that all data is present and warn you about potential errors to help you to stay on top of your data.
If another department, such as legal, is responsible for legal entity management, you can assign them responsibility for the legal entity management module. They can run it as their legal entity management solution; tax does not even have to see or have access if you do not want that. However, the tax department will rest assured that all necessary data is collected and delivered in the correct format. And the legal department will be able to utilize a modern legal entity management solution that meets the needs of a modern legal department.
It would be best to look at the legal entity management process as soon as possible to prepare for the Pillar 2 reporting.