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Under an OECD Inclusive Framework, 140 countries agreed to enact a two-pillar solution to address the challenges arising from the digitalization of the economy. Pillar Two introduces a global minimum Effective Tax Rate (ETR) via a system where multinational groups with consolidated revenue over €750m are subject to a minimum ETR of 15% on income arising in low-tax jurisdictions.
The OECD has recommended that the Pillar Two rules become effective in 2024, with the exception of the Undertaxed Profits Rule (UTPR) which is recommended to become effective in 2025. The EU Member States formally adopted the Minimum Tax Directive on December 15, 2022 and Member States shall transpose the Directive into their domestic law by December 31, 2023. Many other countries are working on their domestic rules to implement Pillar Two. Nevertheless, many multinationals already are subject to Pillar Two since the transition rules capture certain transactions occurring on or after November 30, 2021.
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Provides US MNEs with a step-by-step plan to prepare for Pillar Two.
Check the status of Pillar Two implementation in different countries.
The impact of Pillar Two on the end-to-end operations of the tax department is monumental. Companies will need to ensure they have the data needed to forecast and model in the interim as well as the data to maintain reporting and compliance requirements upon enactment. In addition to Tax, there are several key stakeholder groups within the organization, including Controllership and Financial Planning & Analysis, that will be impacted by the impending changes. One of the common challenges many companies will face is a gap in resources to lead such a broad BEPS 2.0 Readiness initiative. Amongst others, the person in this lead role must be able to address the questions and challenges across four broad categories: People, Process, Data and Technology.
Groups within scope will need to understand, evaluate, and model the impacts of Pillar Two across the organization. This includes, but is not limited to, assessing the additional data and reporting/compliance requirements, evaluating the existing technology ecosystem and capabilities, establishing processes and controls, preparing and training resources, and managing stakeholder expectations.
Pillar Two will have a pervasive impact on an organization’s financial operating model requiring early stakeholder engagement and substantial budget and resource allocation to address the multitude of challenges. Organizations must ask themselves if their current data model, systems, technology, and processes can support the requirements introduced by this new international tax framework.
PwC professionals can help determine how to access the financial data needed to comply, identify gaps in the data needed for reporting, and reevaluate operations given the anticipated law changes in many countries.
Identifying the data requirements and developing a comprehensive data strategy should be one of the first steps that taxpayers take in preparation for Pillar Two. The variety of data sources owned by a diverse group of stakeholders makes the collection and synthesization of the data tremendously challenging. Early cross-functional engagement is critical to ensure that the appropriate data and system owners are aware of what will be required under Pillar Two, why it’s important, and how it may impact them going forward.
PwC professionals can help identify the data requirements and develop a data strategy rooted in systems and processes that can sustain reporting and compliance requirements upon enactment.
Pillar Two introduces new compliance and reporting requirements based on new calculation methodologies. There is some overlap between the data points used for existing reporting and those required for Pillar Two. We recommend undertaking an assessment to confirm whether required data points can be extracted from source systems or whether change requests are required in order to capture required data.
PwC’s Pillar Two Engine is a structured model for assessing the impact of OECD Pillar Two, configured to support the inconsistent and unique adoption of Pillar Two rules around the world and allow for flexibility as those rules continue to evolve. Multiple different variations and interpretations of local rules will require an iterative modeling process for Pillar Two calculations. PwC’s Pillar Two Engine is flexible to allow for various data structures/sources. It also prioritizes the key adjustments/elections. The modeling provides compliance and provision grade calculations as well as data visualization to identify key territories where there is a risk of an OECD Pillar Two tax charge.
Our engine utilizes a centralized database with a vetted calculation engine in consultation with PwC Global technical and policy leaders. The database is dynamically updated for rule changes and new legislation in each jurisdiction.
PwC’s Data Input Catalog is at the center of PwC’s end-to-end process for Pillar Two. The Data Input Catalog defines the data requirements for Pillar Two, giving MNEs a comprehensive understanding of the amount of work that lies ahead of them and can help MNEs anticipate the unique challenges they will face. Acting as the foundation to develop an extensive data strategy, assess operational preparedness, or determine a modeling approach, PwC’s Data Input Catalog is the core to Pillar Two readiness.
PwC professionals can help you assess how Pillar Two might impact your company. We also can help determine how to access the financial data needed to comply, identify gaps in the data needed for reporting, and reevaluate operations given the anticipated law changes in many countries.
We help assess and model the likely financial and operational consequences of Pillar Two, including:
We can enhance reporting and data analytics capabilities, including:
We help meet ongoing reporting and compliance obligations, including: