Pillar Two Readiness: What’s your data strategy?

Aug 14, 2023

Nolan Ogden

US Tax Technology Leader, PwC US

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Doug McHoney

Principal, Quantitative Solutions and Technology, International Tax Services Global Leader, PwC US

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The Pillar Two countdown is on, and the sweeping rules will take effect January 1, 2024. It will be the first global tax system of its kind, and the obligations will further complicate the existing global reporting and compliance environment — placing additional demands on tax departments that are already stretched thin.

The new global minimum tax framework contains significant operational, data, system, process and computational complexities. And the magnitude and timing of these changes leave little time to develop a comprehensive data strategy for complying with global and jurisdictional requirements.

So, how can you get #PillarTwoReady?

To help you integrate Pillar Two requirements with your ongoing compliance obligations, we pulled together a few questions. Read on to jumpstart or enhance your preparation.

Q. Why do I need a comprehensive data strategy for Pillar Two?

You need data at the ready in order to keep pace and comply. Pillar Two’s tax changes could significantly impact your financial operating model, putting data and systems at the center of your operational strategy. You need to assess your current systems, data structure and sources to determine how to collect the information that Pillar Two calculations require.

Based on what we’ve seen, up to 60 percent of your data may come from your Enterprise Resource Planning (ERP) or financial consolidation systems and the rest from your sub-ledger, tax provision, employee benefits and other systems.

Our Pillar Two Guide for US Multinational Enterprises contains a detailed action plan with a step-by-step approach to preparing for Pillar Two and guidance on building a comprehensive data strategy. Knowing your options for managing your Pillar Two data strategy upfront can help you determine the technology, approach and sourcing models that best fit your needs.

Q. How will Pillar Two affect my existing compliance obligations?

It’s not an either-or proposition, but both-and. The ideal approach? Use technology to enhance your data and processes to align your Pillar Two operating model and compliance obligations. We recommend the following connected approach:

  1. Gather: Automate your report collection to pull various source data and structures in real time for Pillar Two and wider compliance filings (e.g., tax provisions, corporate income tax, statutory financial statement preparation).
  2. Transform: Use a common data model or data lake to standardize, organize and enrich data for all of your compliance obligations.
  3. Catalog: Inventory your data to integrate and manage your reporting obligations. For example, our Data Input Catalog includes the Pillar Two data requirements.
  4. Calculate: Use an agile data model and calculation engine that can perform at volume and calculate the impact of Pillar Two. We use our Pillar Two Engine, which is configured to support the adoption of Pillar Two rules around the world and flexes as the rules evolve. Our Pillar Two Country Tracker can help monitor the changes.
  5. Analyze and report: Customize your analysis for global and country-by-country reporting.

Scrutinize your current processes to help ascertain any changes you’ll need to make in order to execute and sustain global compliance. For example, evaluate whether you can adapt your existing processes and controls or if you need to make significant changes. Remember that Pillar Two will ultimately require varying compliance requirements at the global and statutory level; we anticipate deviations in how individual countries adopt legislation, which will make compliance complex.

Q. How can an effective data strategy help drive business results beyond Pillar Two?

Essentially, Pillar Two requires keeping a new set of books and implementing the tech-enabled processes to maintain them. It’s also an opportunity for the tax function to modernize operations and drive value across the business.

Access to Pillar Two-ready data can help tax leaders:

  • Provide insights on the impact of certain elections that are available under Pillar Two
  • Identify opportunities to meet the Pillar Two Safe Harbors, simplifying the provision and compliance process
  • Explain key adjustments that contribute to each jurisdiction’s Pillar Two analysis and computations

Prioritize a data strategy rooted in systems and processes to help you achieve a connected approach that fits your organization best. Know that achieving data excellence and implementing scalable solutions is not a one-time event. You’ll need to continually reassess where you are and where you want to be.

Learn more about how these new global rules could affect your business — and please feel free to contact us directly if you have questions.

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