BEPS Pillar II enters the “second half”: the goal of robust data and cross-functional working is paramount

As we approach the first critical dates of BEPS Pillar II, MHA, the UK member firm of the Baker Tilly Network, and Winmark Tax Director Network held a workshop to discuss the challenges many multinational organisations face. Delegates discussed their respective plans and thinking, with unanimous consensus that the compliance burden will be significant, but the overall potential top up tax is unlikely to be material in most cases. Leveraging a recent case study courtesy of a global financial services group, all the delegates were able to investigate the complexities of identifying data, challenges and opportunities, securing software solutions and allocating the level of project management needed.

The key elements under consideration for multinationals are:

• Legislation: Evaluating and interpreting the Pillar II rules across various jurisdictions.
• Data Collection: Establishing efficient mechanisms for collecting and reporting the necessary data.
• Safe Harbours: Determining the design and operation of safe harbours to simplify compliance initially.
• Certainty: Developing processes to minimise risk arising from the complex rules.

During the workshop, we explored a case study, where a conscious decision had been made to bring strong project management expertise into the Pillar II team, with a focus on identifying data sources to ensure matters such as losses and deferred tax could be readily tracked. It was noted that despite the careful cataloguing of data, this wouldn’t prevent the risk that the effective tax rate could slip below the 15% level in any one jurisdiction. Another area for consideration has been tax materiality and, there were relatively few entities in low tax jurisdictions which was helpful from a Top Up Tax perspective and in relation to a risk standpoint.

One of the more interesting aspects revealed by the case study was the need for tax to become an organisation-wide matter and in operational terms this has meant building a cross-functional approach with business analysts, subject matter experts, finance colleagues, IT developers and data analysts. Not surprisingly, Technological insights in particular were critically important and in the case study example, the use of a sophisticated platform helped consolidate data that could have a high impact. This approach then allowed for a step change towards more robust analysis commencing with the Income Inclusion Rule (“IIR”) reporting readiness, Q1 2024 tax reporting, a Qualifying Domestic Minimum Top-Up Tax (“QDMTT”) readiness report and an enhanced corporate income tax compliance review process linked to Pillar II.

The case study generated a good deal of questions. Some of the points mentioned included how much guidance has been forthcoming from auditors and this seems to have focused upon a review of Top-Up Taxes, financial statement disclosures and overall Pillar II systems / readiness.