BEPS Pillar Two: Understanding data requirements and managing data
Pillar Two is a new compliance obligation and with this change comes both challenges and opportunities. So why is it posing such a significant challenge to corporates and why is it different to the other types of tax reform we have seen in the past?
Outside of the vastness in scale of the application of the rules and the complexity of their nature, one of the key challenges is the requirement to complete the calculations at various levels within a group and across borders.
If you look at the broad structure of the OECD Model calculation, it requires the following:
- Data collection at an entity level
- Effective tax rate calculations at each jurisdiction level
- Calculation of top-up-tax at the jurisdiction level and the allocation of that tax back down to the entities
- Payment of the tax at the group entity level, pending individual jurisdiction legislation
Before we can even get to the calculation of the numbers, we need to get across the data points, and that is where we are seeing most organisations are currently at with their BEPS Pillar Two journey.
In our recent Wolters Kluwer BEPS Pillar Two Readiness Survey (Q4/23), the primary challenge identified by respondents in terms of their BEPS Journey was understanding the data requirements (37.63%). And once an understanding is achieved the challenge is the sourcing of the data – particularly where tax are not the primary holders or guardians of that data. This was also highlighted in our survey where 77.42% of respondents had concerns and anticipated difficulties in obtaining the necessary data and information required.
Mel Kaddatz, Head of Consulting at Wolters Kluwer recently came together with Caroline Wright, Associate Partner at EY, to discuss the challenges they have seen in market when working with clients and teams on their BEPS Pillar Two strategies. Read on to discover their insights on BEPS Pillar Two market readiness and a practical pathway in getting started with assessing and managing data for transformation and compliance.
Challenges with collecting entity and provision information
EY has observed a major challenge in collecting the extensive and varied new data required for Pillar Two calculations. Compliance entails gathering potentially hundreds of new data points regularly for tax provision and filing obligations. This raises concerns about effectively aggregating this information. Key sources include entity lists, consolidated trial balances, CbCR reports, and global tax provision calculations, with some data possibly residing outside the tax team.
For Pillar Two compliance, identifying group entities is crucial, yet many organisations lack a centralized source for entity data. EY finds that disparate core systems contribute to this fragmentation. Wolters Kluwer addresses this challenge by integrating Pillar Two requirements into existing entity attribute fields and ensuring comprehensive data alignment. Standardising data and templates streamline both Pillar Two and CBCR reporting, recognizing their interconnectedness.
EY are seeing challenges around provision calculations not having enough granularity for Pillar Two reporting, particularly for deferred taxes. Organisations using different software solutions in different jurisdictions exacerbates challenges with different calculations, currencies, and mapping data. Wolters Kluwer agree this is a primary data challenge coming up. For this reason, flexibility in importing provision data into a platform is crucial. Whilst ideally, clients would be using CCH Integrator to prepare their provision workbooks – in which case relevant data points can be linked through, the platform also has the flexibility to ingest data from a variety of data sources, including Excel.