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.
According to the initial timeline released by the OECD, these rules would become effective in 2023, with the exception of the UTPR which would become effective in 2024. While EU Member States are working diligently to reach agreement on the rules, some countries, e.g., the UK and South Korea, have drafted domestic legislation, while others have initiated public consultations. Many countries have stated the need to push back the effective dates to 2024 and 2025, respectively. Given the enormity of the task ahead this is expected and welcome. However, many multinationals already are subject to Pillar Two, since the transition rules capture certain transactions occurring on or after November 30, 2021.
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.
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 your reporting and data analytics capabilities, including:
We help you meet your ongoing reporting and compliance obligations, including:
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 and 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.