Guest comment by Russell Gammon
By the summer of 2024, it is anticipated that the bulk of the much-discussed Pillar 2 tax rules will come into force. At this point, multinational companies with consolidated revenue exceeding E750 million will begin a new era of taxation, whereby they will be mandated to pay a global minimum tax of 15 per cent, irrespective of the location of their operations.
Having been in the works for some time, the rules stem from OECD Base Erosion and Profit Shifting (BEPS) project – a key cornerstone of the last G7 summit, designed to harmonise corporation tax on a global level. Today, as Pillar 2 implementation gets nearer, businesses are scrambling to devise tax strategies to comply with these new requirements.
In doing so, a critical challenge emerges: how to address at least 150 data requirements against the backdrop of complex operations spread across multiple countries.
The crux of the issue is the sheer volume of data that must be compiled and analysed to meet the Pillar 2 requirements. In many large organisations, for instance, this information is typically scattered across various systems, and as a result, companies frequently rely on Enterprise Resource Planning (ERP) systems as the primary data source.
many companies are doing the right thing by concentrating on figuring out how to source the data and from which systems – a process which may involve assessing whether system upgrades are necessary
The problem here is that the capabilities of ERP solutions vary greatly among companies; while some have invested in advanced systems, others operate with fragmented technologies, particularly those that have acquired different companies over time. In truth, it is unlikely that more than a handful of businesses will have everything they need in their ERP tool. The challenge, therefore, is how to efficiently extract and consolidate this data.
In addition, many other companies are resorting to Excel for data consolidation, using highly detailed spreadsheets to store information and perform calculations. This is also not without its challenges, given some companies may have systems that consolidate data at the group level, whilst Pillar 2 requires consolidation at each jurisdictional level, which is not a straightforward task.
At present, many companies are doing the right thing by concentrating on figuring out how to source the data and from which systems – a process which may involve assessing whether system upgrades are necessary.
With this driving strategy and decision-making, the overall sentiment among businesses ranges from confidence in their systems’ ability to adapt to these changes to something bordering on panic about the feasibility of complying with the requirements in a timely and affordable manner.
Another interesting perspective to emerge in the course of Pillar 2 discussions and planning is a recognition that the rules are not just a tax challenge but also a financial challenge. This has sparked conversations between tax and finance departments regarding the allocation of resources for compliance and represents another potential twist in the road for teams to navigate.
Moreover, the growing trend among companies to handle their taxes via co-sourcing arrangements adds a further potential layer of complexity to test the capabilities of legacy processes and technologies. In practical terms, instead of the traditional binary choice of either handling taxes in-house or outsourcing compliance to an accounting firm, companies are increasingly blending these approaches.
When data is integrated into a single platform, teams across various departments and geographic locations can work together more effectively
For instance, a business might handle certain aspects of the tax process internally while outsourcing other components to specialist third parties depending on their specific requirements, resources and available skill sets.
So where does that leave tax professionals and in-house teams? The answer to this complex set of issues lies in global data integration and collaboration through a unified platform. This approach is designed to transcend traditional, fragmented methods by creating a cohesive ecosystem in which data from multiple sources can be aggregated efficiently. This not only reduces the complexity associated with data consolidation but also enhances accuracy.
As part of this approach, collaboration is vital. When data is integrated into a single platform, teams across various departments and geographic locations can work together more effectively.
This collaborative approach ensures that there is a seamless flow of information, enabling timely and informed decisions. Crucially, it also helps to alleviate the burden on tax and finance departments by automating the process of data gathering and validation. In an era where data is everything, a unified platform for data integration and collaboration is an important capability that companies need to develop to ensure compliance with Pillar 2 requirements.
So, as the deadline for compliance with Pillar 2 approaches, organisations must focus on the task of effectively managing an increasingly complex set of data requirements, and the key to doing so lies in integrating and consolidating data from various systems. Given many current technologies bring legacy shortcomings, embracing innovation is vital for any tax team or professional advisor that wants to stay ahead of the new regime that Pillar 2 will usher in.
Russell Gammon is Chief Solutions Officer at Tax Systems