Implementing a tax control framework for managing pillar two compliance 

By providing a structured set of processes, practices and internal systems, control frameworks have long been utilised by organisations to enhance governance and risk management and maintain compliance with regulatory standards. While legal and finance control frameworks are fairly commonplace, in recent years a growing number of companies have developed tax control frameworks to better identify and manage their tax processes. 

Providing a proactive and transparent approach to tax risk management, the goal of a tax control framework is to assure the accuracy and completeness of tax compliance, deliver tax certainty and keep stakeholders informed in a timely manner. As such, it plays a critical role in unifying and automating tax processes, such as provisioning and country-by-country reporting, to deliver a fully consolidated and auditable view of tax matters. Something that is now front of mind for organisations as they prepare to comply with the upcoming Pillar Two tax reporting rules. 

Pillar Two: the catalyst for change 

Tax control frameworks are becoming increasingly common as international firms seek to manage their Pillar Two tax reporting and compliance obligations across multiple jurisdictions.  

Representing a ‘once in a decade’ opportunity to introduce a structured process that optimises how organisations undertake and reconcile their local and global reporting, a robust tax control framework is invaluable for ensuring compliance with Pillar Two’s global reporting demands. 

At its core, Pillar Two demands a level of accuracy and transparency that is near impossible to achieve using fragmented and largely manual approaches to tax reporting. In response, organisations are having to rethink how they record and collect data across their local operations. Whilst decentralised models still exist, where local teams have autonomy over how they stay on top of taxes, central frameworks are now being put in place over the top of them, so that a better picture of what is happening across the entire group can be obtained.

Providing an internal control system that ensures tax matters can be managed efficiently and consistently across all relevant territories, a tax control framework enables organisations to establish standardised procedures and document how these procedures feed into its tax calculations and returns. This not only delivers enhanced tax transparency for all internal and external stakeholders, but it also provides a basis for enhanced cooperation with tax authorities. 

People, process, and technology 

For a tax control framework to be truly effective, it will need to contain three essential components: people, processes, and technology.  

Firstly, everyone involved in tax activities will need to clearly understand their role and responsibilities and how their work supports the bigger picture. Enabling a robust RACI model (responsible, accountable, consulted, and informed) will eliminate errors, confusion, duplication or missed steps and ensure that tax analysts, finance professionals and external advisors can collaborate in an informed and effective manner. 

Once people know what they should be doing and why, the organisation will need to implement clearly documented and standardised procedures that outline how things get done. This should include workflows, milestones, review cycles and escalation paths that reduce tax risk and improve efficiency.  

These centralised processes should encompass the entire tax lifecycle, from data collection and reconciliation to review, reporting and submission. As Pillar Two evolves, it is likely to involve more complexity and tighter timelines. All of which means that repeatable and reliable processes will be critical for filing next year’s returns and staying on top of any external and internal changes. 

Finally, technology is the enabler that ties everything together. Empowering organisations to automate data crunching and routine tasks, adopting dedicated technology to help gather data and integrate tax controls directly into existing financial systems will significantly maximise efficiencies and reduce the risk of manual errors. As AI becomes more prevalent in tax, this trend will only increase. 

Enabling a technology-enabled tax control framework 

Pillar Two calculations and reporting requires huge amounts of data from numerous sources, and today’s modular cloud-based tax calculation and compliance platforms make it easy to gather, seamlessly integrate, and verify data from centralised systems and geographically dispersed teams. 

With the right technology in place, organisations can upload information once and re-use it as a single source of truth for their Pillar Two tax compliance data. Ensuring consistency across the entire tax reporting cycle, utilising a technology solution not only reduces operational complexity and minimises the risk of errors. It also supports the automated production of the GloBE Information Return (GIR) alongside the preparation of fully compliant local returns.  

Since Pillar Two, country-by-country reporting (CbCR), and provisioning are interrelated processes, it makes sense to integrate all three. This capability will prove pivotal for organisations that want to get closer to the right answer faster, so that they can satisfy OECD requirements and ensure they pay the right amount of tax. 

By deploying a tech-enabled tax control framework, organisations will be able to streamline their data flows via a single integrated platform. This will not only reduce data overload but also make it easier to focus on detecting potential anomalies or inaccuracies before information is presented to tax authorities – something that is of particular value in multi-jurisdictional environments, where even small misalignments can prove costly to identify and put right. 

Accelerating outcomes, delivering new value 

Preparing for the impact of Pillar Two is prompting many global businesses to rethink how tax is managed across their operations. Providing an internal control system that ensures tax matters are managed efficiently and consistently across all relevant territories, a tax control framework eliminates data silos, brings finance, group tax, and local tax teams closer, and increases the transparency and efficiency of tax processes. 

With a clearly defined and tech-enabled control framework in place, organisations will be able to meet their compliance obligations for Pillar Two with the confidence of knowing that tax positions are based on reliable data. In addition to which, by ensuring their tax processes and data gathering are centralised and managed from a single connected platform, tax leaders will be better positioned to identify and manage tax risks and able to deliver new value-add insights to the enterprise’s finance and business leaders.