Pillar Two in practice: Seven lessons from the front lines of compliance

1. Operating model reconsideration: Reevaluating insourcing, outsourcing, and resource allocation

Deciding on an operating model for Pillar Two compliance is a critical, organization-specific decision that shapes how companies manage complexity, resource allocation, and control. When asked how they plan to meet Pillar Two requirements with a choice between insourcing, outsourcing, or a hybrid approach, 50% of webcast respondents indicated they are using a cosourced solution, 27% are handling compliance fully in-house, and 23% are fully outsourcing the compliance.

Lesson: Identify as soon as possible the operating model that suits your needs. A well-designed operating model may provide greater scalability and control over compliance responsibilities, positioning tax teams to navigate ongoing regulatory changes with confidence.

2. Stateless entities and non-qualified domestic minimum top-up tax (QDMTT) jurisdictions: Technical obligations and future implications

For entities in non-QDMTT jurisdictions, there may not be filing obligations for 2024, unless intermediate parent entities are in income inclusion rule (IIR) jurisdictions. However, changes are expected in 2025 when the undertaxed payment rule (UTPR) comes into effect, potentially broadening filing requirements.

Stateless entities are often flow-through or disregarded entities like certain partnerships and US limited liability companies. These entities do not qualify for the transitional safe harbor and require deeper analysis for compliance. Their treatment depends on whether they are transparent (income flows up to the owner) or reverse hybrids (income stays at the entity level). The key technical insight is that, if the owners of a stateless entity qualify for the transitional safe harbor, calculating Global Anti-Base Erosion Rules (GloBE) income for the stateless entity may not be required. This distinction can significantly impact the volume of work and resource allocation when scoping projects.

Lesson: Understanding these nuances helps organizations anticipate future regulatory obligations and avoid unnecessary compliance efforts, ensuring resources are efficiently focused.

3. Timing: Global deadlines and early filings

Only 7.1% of webcast participants have completed their 2024 Pillar Two reporting, with many still in the early stages. With deadlines scattered across jurisdictions and subject to frequent updates as new legislation is passed in various jurisdictions, the challenge is clear: Static calendars and rigid plans are insufficient. Delaying compliance activities while waiting for additional G7 announcements may create last-minute rushes for technology setup and provider engagement. Successful teams are building flexibility into their compliance processes, assigning clear ownership for specific tasks, and preparing for both early filings and last-minute adjustments. 

Lesson: Proceed with compliance activities until such time as future guidance changes, especially for early filings. Plan for flexibility and ensure your teams are monitoring changes regularly.

4. Surrogate filer selection: Key considerations for choosing a surrogate filer

For US-headquartered MNEs, the question of surrogate filers for the GloBE Information Return (GIR) is a key strategic consideration. Many organizations are still weighing their options, recognizing that the right choice can streamline compliance, reduce risk, and improve operational efficiency. Early determination of your surrogate filing jurisdiction is critical to avoid last-minute surprises or delays in compliance. Evaluation of service providers should consider factors such as experience, technology capabilities, and jurisdictional fit.

Lesson: Treat surrogate filer selection as a strategic priority. Evaluate options thoroughly, and confirm your choice aligns with broader compliance and risk management objectives.

5. Qualified country-by-country report: Importance and implications for compliance

A qualified country-by-country report (CbCR) is essential for securing transitional safe harbor benefits under Pillar Two rules. For US MNEs, this means timely and accurate filing of Form 8975. Importantly, compliance with US Form 8975 requirements alone doesn’t guarantee qualification for the safe harbor, as organizations need to ensure their CbCR meets OECD criteria. This may mean including a broader set of entities or adding explanatory notes for completeness. 

Lesson: With Form 8975 now impacting actual tax liability, rather than just providing information, it’s vital to review your filing process, verify the use of qualified financial statements (as defined under Pillar Two transitional safe harbor rules), and confirm the CbCR fully satisfies global requirements.

6. Defining your approach and getting started: Early engagement, launch labs, and stakeholder alignment

Uncertainty remains a defining feature of Pillar Two implementation. However, the most effective teams are not waiting for perfect clarity. They are mobilizing early in a focused interactive environment, collecting data, and refining their models as new guidance becomes available. These interactive “launch labs” accelerate decision-making, build shared ownership, and lay the groundwork for successful project execution. This willingness to act rather than wait enables organizations to stay ahead of the curve and respond effectively to emerging challenges.

Lesson: Move forward with what you know and host a launch lab to mobilize stakeholders in an interactive, focused setting. This will help identify gaps in data and resources early on.

7. Data and technology: Need for data experts and technology specialists from the outset

When asked about data and technology readiness, 39.5% of respondents acknowledged they are struggling to gather the required information, while 33.8% are rolling out innovative solutions. Just over 25% of respondents feel fully prepared. Establishing robust processes for collecting, validating, and reconciling data on revenues, profits, and taxes across jurisdictions is key for success, as well as confirming that the right information is captured, cleansed, and structured for the calculations. Automating tasks; investing in robust platforms; and fostering collaboration between tax, finance, and IT are now essential for global compliance.

Lesson: Prioritize technology and data governance. Invest in the right tools, and foster cross-functional collaboration to support efficient, accurate compliance.

Looking ahead: Adapting to change

The G7’s statement and ongoing OECD negotiations may eventually reshape Pillar Two obligations, but for now, organizations should stay the course in preparing their initial-year compliance. As the landscape continues to evolve, with the right approach organizations can navigate the complexities of global tax reform and may position themselves for long-term success.

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