Pillar Two – Tax Advisory and Reporting Services
From policy to practice
Pillar Two tax will change the core principles of the international tax landscape from 2023.
Nearly every country in the G20/OECD Inclusive Framework on BEPS (‘the Inclusive Framework’) has signed up for it. OECD Pillar Two is a joint political statement on agreed components of a ‘two-pillar’ approach to global tax reform. Pillar Two sets out global minimum tax rules to ensure large multinational businesses pay a minimum effective tax rate of 15% on profits in all countries.
The Pillar Two tax model rules outline the scope, mechanics, and administration of this approach. The unprecedented nature of this reform and the scope of activity required to comply with Pillar Two will present significant challenges for organisations that fall within the scope of the rules. Deloitte is well equipped to provide a wide range of Pillar Two tax solutions, including but not limited to the following areas.
Safe harbour analysis
On 20 December 2022, the OECD published a Pillar Two implementation package.
The package includes guidance on a transitional CbC safe harbour, a short-term measure designed by the OECD to reduce the compliance burden for groups in certain lower-risk jurisdictions from the scope of Pillar Two in the first three years of the rules.
There are three tests as part of the transitional CbC safe harbour and a qualified CbC report is required.
Deloitte helps groups understand transitional safe harbour rules. We can also make recommendations for any improvements to current CbC reporting process, model the application of the transitional CbC safe harbour using the most recent CbC data, while performing a wider review of CbC report preparation and process. Please contact James Smyth or Joseph Keane for further information.
The modelling service
What does Pillar Two tax mean for your business?
We know many businesses will want to understand Pillar Two’s tax impact on their organisation. Our policy and technical tax specialists advise many businesses. They also help them understand the implications of the new rules. These include additional tax costs, frictions in group structures and assessing potential approaches to help businesses prepare ahead of Pillar Two rules taking effect.
Our OECD Pillar One and Pillar Two modelling service combines the deep expertise of Deloitte tax specialists with the analytical power of our technology solution. This helps companies assess and evaluate the potential implications of Pillar Two on their tax profile.
Data diagnostic tool
Pillar Two is a new and complex compliance requirement. It requires granular data points from across accounting, tax reporting, and tax return to company secretarial data. There are over 100 core data points to collect per Constituent Entity (legal entity, branch, permanent establishment), with further data points related to elections or group specific areas. Some may sit in central systems, but many will not. You need to understand whether your business has data at the required granularity and how to design an efficient data collection process that gives you confidence.
We’ll work with you and your team to identify and assess data points required for the data collection and calculation aspects of Pillar Two, using the Deloitte Pillar Two Data Diagnostic Tool. This tool uses the definitions we’ve obtained from the OECD Model Rules, OECD Commentary to the GloBE rules, OECD Agreed Administrative Guidance to the GloBE rules and the OECD Implementation Guidance. We use this tool with you to create a report that illustrates your data sources and data gaps, while providing commentary on your Pillar Two technology landscape.
This report and outputs from the Data Diagnostic help us provide tailored advice on proposed next steps for data collection, high-level considerations for technology strategy, and key steps on your compliance journey.
Tax accounting and audit readiness
Tax accounting and Pillar Two calculations are intrinsically linked - tax accounting data feeds Pillar Two calculations and Pillar Two calculations will be needed for tax provision work from 2024. Companies will need to update their existing technology and processes to ensure they can meet the requirements.
While the areas of focus may be different for UK Headquartered businesses to those that are owned overseas - everyone will need to understand the interaction of Pillar Two on their Tax Accounting roles, responsibilities and processes. We can help you:
- Plan for and prepare the tax accounting disclosure and reporting requirements.
- Develop a strategy for satisfying the tax accounting requirements for Pillar Two including managing the activities within an already busy tax accounting schedule.
- Consider the delivery model options including what can be managing internally, the advisor and / or outsource support available and the technology and tools available to help.
- Complete the end-to-end Pillar Two calculation for quarterly/interim and year-end tax reporting – including activities such as safe harbour analysis and documentation that could support your conversations with auditors.
- Understand and calculate the impact, not just for group reporting purposes, but also for the standalone financial statements of the entities across the worldwide group.
- Provide tax accounting training with a Pillar Two focus.
- Understand how tax accounting concepts will influence Pillar Two outcomes from transactions and business change, such as M&A activities.
If you would like to find out more about the services we provide for tax accounting and audit readiness, please contact James Smyth and Joseph Keane.
Our thinking
Our solution can help:
Deloitte’s OECD Pillar One and Pillar Two model
Data diagnostic tool
Data diagnostic tool
Pillar Two is a new and complex compliance requirement. It requires granular data points from across accounting, tax reporting, and tax return to company secretarial data. There are over 100 core data points to collect per Constituent Entity (legal entity, branch, permanent establishment), with further data points related to elections or group specific areas. Some may sit in central systems, but many will not. You need to understand whether your business has data at the required granularity and how to design an efficient data collection process that gives you confidence.
We’ll work with you and your team to identify and assess data points required for the data collection and calculation aspects of Pillar Two, using the Deloitte Pillar Two Data Diagnostic Tool. This tool uses the definitions we’ve obtained from the OECD Model Rules, OECD Commentary to the GloBE rules, OECD Agreed Administrative Guidance to the GloBE rules and the OECD Implementation Guidance. We use this tool with you to create a report that illustrates your data sources and data gaps, while providing commentary on your Pillar Two technology landscape.
This report and outputs from the Data Diagnostic help us provide tailored advice on proposed next steps for data collection, high-level considerations for technology strategy, and key steps on your compliance journey.
Tax accounting and audit readiness
Tax accounting and audit readiness
Tax accounting and Pillar Two calculations are intrinsically linked - tax accounting data feeds Pillar Two calculations and Pillar Two calculations will be needed for tax provision work from 2024. Companies will need to update their existing technology and processes to ensure they can meet the requirements.
While the areas of focus may be different for UK Headquartered businesses to those that are owned overseas - everyone will need to understand the interaction of Pillar Two on their Tax Accounting roles, responsibilities and processes. We can help you:
- Plan for and prepare the tax accounting disclosure and reporting requirements.
- Develop a strategy for satisfying the tax accounting requirements for Pillar Two including managing the activities within an already busy tax accounting schedule.
- Consider the delivery model options including what can be managing internally, the advisor and / or outsource support available and the technology and tools available to help.
- Complete the end-to-end Pillar Two calculation for quarterly/interim and year-end tax reporting – including activities such as safe harbour analysis and documentation that could support your conversations with auditors.
- Understand and calculate the impact, not just for group reporting purposes, but also for the standalone financial statements of the entities across the worldwide group.
- Provide tax accounting training with a Pillar Two focus.
- Understand how tax accounting concepts will influence Pillar Two outcomes from transactions and business change, such as M&A activities.
If you would like to find out more about the services we provide for tax accounting and audit readiness, please contact James Smyth and Joseph Keane.