The impact of OECD Pillar Two
OECD Pillar Two model rules are designed to ensure that large multinational enterprises pay a minimum level of tax on income arising in every jurisdiction they operate in. These rules are ambitious in scope and reach, designed to accommodate diverse international tax systems, tax consolidation rules, income allocations, entity classification rules, and business structures.
Global tax reform at this scale changes many aspects of how multinationals pay tax, manage increasing data needs, calculate tax liabilities, and report under both financial reporting and tax compliance requirements. To help mitigate some of this complexity, at least in the near term, the OECD has recently published transitional safe harbors in advance of December 31, 2026. Companies will need to review and monitor safe harbor frameworks to understand which apply over time. The OECD Inclusive Framework is also exploring dispute prevention and other mechanisms for increasing tax certainty.
The need for a proactive approach
As you are most likely aware, the new Pillar Two ruleset is complex. Deloitte’s dedicated global tax policy teams closely monitor both the OECD and local - country developments to help organisations comply with the specific taxes covered under Pillar Two:
Given the complexity and potential impact of the new requirements, global corporations will need to take an informed, proactive approach to compliance—developing a clear understanding of the rules; conducting detailed assessments; and rolling out a targeted, compliant response backed by the necessary data, technology, processes, and resources. To make sure your business is prepared:
With so much at stake, clarity and thoughtfulness are a must. To that end, here are the Pillar Two data types, calculation considerations, and reporting requirements to evaluate now to ensure compliance with current and upcoming OECD directives.
Pillar Two requires more than 100 accounting, tax, and company data points per entity, including:
To capture all these data points, you need to interpret the definitions for your group, know where your data resides, how you'll access it, and how you plan to address any gaps. And remember that while Pillar Two demands a lot, it also offers an opportunity to increase data accuracy, automate the reporting process, and possibly improve your tax positions and planning.
To comply with new, more complicated tax rules, you’ll need to determine baseline requirements. Eventually a complex and complete return calculation engine will be required, these are under development by software vendors and advisors – decisions will need to be taken on the compliance platforms, but the most immediate need is to model Pillar Two results for the purposes of planning and accounting. To that end, groups are working through:
It's unlikely that your current tax technology can support all of your Pillar Two data, calculation, and reporting needs. And in the absence of off-the-shelf solutions, it's important to figure out exactly which enhancements can fill the gaps.
Reporting and filing details
The OECD is in the process of developing a standardized information return. In the meantime, the public consultation document published by the OECD contains a comprehensive set of required data points, including general information about the group and filing entity, effective tax rate (ETR) computation and top-up tax, and top-up tax allocation and attribution. The initial filing deadline is 18 months after year-end for the first year a company is in scope; subsequent deadlines will be 15 months after year-end.
Going forward, there is an expectation for proliferation of QDMTT requirements at the country level, which, in addition to impacting the eventual filing, may require flexible calculation solutions and more data gathering. The local requirements will lead to the need for close policy monitoring on the latest developments and must be considered for compliance planning.
To stay informed, closely monitor the standardized return and additional filing information as it becomes available.
How Deloitte can help
Deloitte’s OECD Pillar One and Pillar Two Tax Advisory service brings together the deep expertise of Deloitte tax specialists and the analytical power of our data and technology solutions to help multinational businesses assess and evaluate the tax implications of global tax reform. We offer support for everything from initial gap assessment to tax impact analysis to implementation, including these end-to-end services: