Are multinational organisations ready for Pillar 2?

With the end of 2023 rapidly approaching, the next 12 months are likely to bring some major changes to the way many businesses conduct their tax affairs.. A long time in the making, Pillar 2’s implementation means that all multinational organisations with consolidated annual earnings over €750 million will be legally required to pay a global minimum of 15 per cent tax going forward, irrespective of where they operate. Its creation is designed to help harmonise corporation tax globally, as well as deter offshore tax evasion, boosting government coffers in the process.Pillar 2 is a foundational part of the OECD’s Base Erosion and Profit Shifting (BEPS) project. As the date for its implementation gradually draws closer, organisations within its scope are scrambling to ensure their tax strategies comply with its complex obligations. However, most are finding that this is no easy task to coordinate across multiple countries, divisions, and teams. 

Addressing data accessibility challenges

Perhaps the biggest challenge facing multinational organisations is the sheer volume of data that needs to be collected and analysed to meet Pillar 2’s 150+ data requirements, most of which is spread across multiple disparate databases, spreadsheets, and systems around the world. Many are naturally looking to their ERP system as a key data source, but these vary significantly among different businesses. While some have invested in advanced solutions, others run on siloed legacy infrastructure, making it much harder to ensure compliance.

In reality, only a small percentage of organisations will have all the tools within their ERP system needed to meet Pillar 2’s requirements. Consequently, the challenge businesses face is finding a way to extract and consolidate the necessary data as effectively as possible.

While some will likely turn to Excel for this task, it’s far from ideal. Not only are complex tax spreadsheets difficult to compile and maintain, but they are also highly vulnerable to human error. Furthermore, while Excel may help organisations consolidate data at a group level, Pillar 2 stipulates that it must also be consolidated at every jurisdictional level as well, which is much harder to achieve through manual processes.

The right tools for the job

Having the right tools for the job is critical, which is why a growing number of multinationals are assessing their existing technology and deciding whether further investment is required in the lead up to Pillar 2’s implementation. Suffice to say the picture is mixed, with some expressing full confidence in their current systems’ abilities to handle Pillar 2, while others feel major investment is needed to stand any chance of meeting its demands on time.

During these planning discussions, another intriguing viewpoint has also emerged, acknowledging that the regulations present both a tax challenge and a challenge for the finance function. This realisation has initiated conversations between tax and finance departments concerning the allocation of resources for compliance, adding even more potential complexity for teams to navigate along their journey.

At the same time, there is a growing trend of businesses managing their taxes using co-sourcing contracts, which brings yet another level of complications to push the limits of legacy systems. Instead of a binary choice between calculating tax in-house or outsourcing it wholesale to an accounting firm, some businesses are taking a dual approach. Practically speaking, this means handling certain aspects of tax obligations internally, while outsourcing other elements to specialists, according to specific needs, resources, and available skills.

A new approach is needed

With all of this in mind, what does the future hold for tax specialists and internal teams? The answer lies in global data integration through a single unified platform. This approach is designed to transcend traditional, fragmented methods by creating a cohesive ecosystem in which data from multiple siloed sources can be aggregated efficiently, greatly reducing complexity whilst simultaneously enhancing data accuracy. 

When it comes to this kind of approach, collaboration is key. When data is centralised, teams across multiple departments and locations can work together seamlessly, ensuring that there is an uninterrupted flow of information, which in turn enables faster, more informed decision-making. Critically, automation can also be used on various time-consuming aspects of the data gathering and validating process, greatly reducing the pressure on organisations’ tax departments.

As the deadline for Pillar 2’s implementation rapidly approaches, multinational businesses of all sizes must prioritise compliance or risk a heft penalty. Investing in the right technology can help to significantly lighten the load, but flexibility and a willingness to innovate are just as important. Successfully combining these elements will ensure that your business’ tax processes are fit for purpose in the Pillar 2 era.