Pillar Two isn't just a tax matter

Reconsider your investment strategy

Pillar Two requires transformations that impact the entire organization and fundamental business strategy – affecting everything from the organization’s operational bases to the business strategy for mergers and acquisitions, restructurings and even the supply chain management. In addition, Pillar Two could substantially alter the business strategy of multinationals, urging them to reconsider acquiring entities in lower-tax countries and revisiting decisions regarding operational relocations to higher-tax jurisdictions. For instance:

• Pillar Two could negatively impact the organization’s investment strategy in the situation that an acquisition pushes the organization’s turnover above the EUR 750 million threshold bringing the organization in scope of the Pillar Two requirements.
• In the situation that multinationals acquire entities in higher-tax jurisdictions, surpassing the 15% global minimal tax, Pillar Two predominantly translates into a substantial compliance effort.
• Multinationals operating in lower-tax jurisdictions with lower tax rates may face "top-up" taxes, aligning their effective rates with the 15% threshold in every country where their effective tax rate falls below. This might impact business operations as it may be less desirable to set up operations in low-taxed jurisdictions or move operations to a higher-taxed jurisdiction.                                 

To navigate these challenges, it is crucial to reevaluate your investment strategy and incorporate the Pillar Two perspective into strategic planning. Failing to do so may result in unforeseen costs that could derail well-laid plans.

Direct driver for business transformation

Pillar Two drastically changes the reporting landscape resulting in additional pressure on your (finance) organization. This has significant implications for investments in processes, technology and human resources. Pillar Two also calls for a careful collaboration and coordination due to its broad impact on various stakeholders within the organization on a global scale. The C-suite needs to ensure that tax, accounting, reporting, legal, finance and data & technology receive the necessary support to gather relevant data, seamlessly exchange information between departments and meet the reporting deadlines in a timely manner.

Strategic take aways:

• Monitor whether acquisitions push your turnover above EUR 750m threshold bringing you in scope of Pillar Two
• Assess impact on investment decisions and feasibility of potential future investments
• Examine the impact on existing business and potential targets
• Rationalize your legal entity structure to facilitate the effective implementation of processes
• Assess the capability of the current data model, systems, technology, processes and resources to support Pillar Two. Real time data is imperative for informed investment decision
• Establish a solid governance and internal controls structure

How can we help?

Deloitte can help your organization understand your business needs in respect of Pillar Two and assess whether your current business model and strategy is fit for the future considering these new regulations.

With the extensive knowledge of Deloitte's Pillar Two experts in tax, legal, audit, risk, and consultancy, along with the analytical capabilities provided by our data and technology solutions, we can help your organization navigate with confidence through the complex Pillar Two requirements. Our experts are ready to assist you with the implementation of the Pillar Two rules and ensure your organization is fit for the future and in alignment with your business model and strategy.