“By failing to prepare, you are preparing to fail.”
– Benjamin Franklin, Founding Father of the United States
Many organisations appear underprepared for BEPS pillar two. For instance, in a poll of more than 200 registrants held before a webinar on September 5 2023, 88% reported that their companies are still in the early phase of their journey, with 57% at the first stage, of simply monitoring rules and announcements and with no work completed to date.
It is crucial for organisations to understand that despite the OECD’s legislative timelines being extended to 2025, action must be taken now to establish efficient data management solutions for future reporting requirements, rather than waiting until the last minute.
Some organisations may be assuming they have plenty of time and do not need to start taking concrete action to be ready for pillar two until much later, let alone the myriad of other compliance and reporting challenges. This misconception is reflected in the results of the poll, in which the registrants were asked to indicate their stage of preparedness.
Only 6% of the registrants for the webinar said their firms have reached the point of completing a potential impact assessment internally, while just 3% are at the final stage, of implementing a data and operating model.
The webinar, “Navigating tax data collection: streamlining systems to meet evolving tax rules”, was held in partnership between ITR and Wolters Kluwer, a global leader in software and knowledge solutions for corporate tax professionals. This article will discuss the main points.
A second presentation featured a live demonstration of Wolters Kluwer’s CCH Integrator platform, as a potential solution in tackling the data management challenge, with a focus on pillar two.
Data management challenges and strategies
The first webinar set forth a data management roadmap to help tax teams to navigate the challenges presented by enhanced reporting requirements, including those of pillar two.
Ryan da Rocha, a senior consultant and tax technology specialist at Wolters Kluwer, explains how collecting, extracting, and normalising data for tax provisioning and reporting is complicated by the evolving corporate tax landscape.
For corporations that expect to be impacted by pillar two, data management is anticipated to be the main challenge; therefore, sourcing the underlying data required for the calculations should be the top priority to ensure pillar two readiness.
However, tax teams at multinational enterprises (MNEs) around the world are faced with navigating numerous potential challenges, including:
Differing rules on what data is required in various jurisdictions for similar types of tax;
Controlled foreign corporation rules;
Passive income rules;
Transfer pricing rules; and
The use of different accounting principles and currencies.
The scale of the challenges is exacerbated by the required data often being held by a variety of sources within an organisation, such as tax, finance, and HR.
Calling this an unprecedented change is not an exaggeration.
It is clear that pillar two is but the tip of an iceberg facing tax teams, albeit one that is becoming an increasing threat to stability. “Many of the issues for data collection for pillar two are also applicable for all the other tax compliance obligations faced by groups taken as a whole,” Ryan says. “Pillar two introduces a new tax compliance regulatory regime, so calling this an unprecedented change is not an exaggeration.”
The challenges raise numerous data-related questions for tax teams, such as:
How can the collection of data from different systems be managed to comply with existing regulations but also new ones such as pillar two?
How is it possible to ensure that data is accurate, up to date, and tax sensitised?
Where should the data be stored?
In attempting to find answers to these questions, tax departments must demonstrate an ability to adapt to a constantly changing landscape. “The modern tax function has to be forward thinking,” Ryan says. “It has to stay agile and flexible, and work towards bringing new data collection and tax filing obligations into a business-as-usual environment as quickly as possible before moving on to the next tax obligation. As there is no indication that the tax rules will stop changing, change management needs to be a constant part of a tax team’s mindset.”
Ryan also suggests there are three elements to focus on in approaching tax data collection and management:
People – it is important to engage with data owners and ensure there is an understanding of what data is needed, and why;
Processes – the method of extracting the data is an essential consideration; and
Technology – this can facilitate timely results and ensure that reporting expectations are met.
People
Cross-functional meetings are vital to ensure the right personnel are brought into the process of tax data collection. “We find accessing data can be a challenge if the correct people are not engaged,” Ryan says. “The data you will be collecting will not just be from the tax function, but will be collated from all across the organisation, so there has to be a collaboration.
“When clients send out data requests to those outside the tax department with little to no context, it always adds to the complexities. It’s not surprising to hear the first response from those outside the tax team being ‘we just don’t have this data’. Often it isn’t that the team doesn’t have the data, it’s that they’re not engaged enough with the process and therefore don’t know what the data is and why it’s required. So, through more conversations, normally the data can be found or created.”
Ryan presents two ways of helping interaction with data owners:
Collating data points in such a way that you can use them as a reference (a data store); and
Process mapping to create engagement and an up-to-date record of the required processes.
The webinar provides an illustration of an example data store, with standardisation a key factor in avoiding confusion. “There’s a potential for people to misunderstand each other over the terminology when people are coming from different angles,” Ryan says.
A data store should be shared with other departments, which should be able to verify the accuracy, and helps to keep track of the tax position for certain years and filing periods, which may be helpful in audits.
Processes
Process flow mapping helps to foster the engagement that has been cited as an important factor in successful data management. It helps to identify the required data, where it is stored, and whom to contact if the data provided does not meet expectations. A basis for defining roles and responsibilities can be arrived at, as well as a basis for agreeing key controls over processes.
The webinar provides examples of a structure for process flow mapping and how to build a sample state workflow centred around the three Cs of capture, calculate, and communicate.
Ryan emphasises the importance of keeping these processes separate, which helps to avoid adjustments and having to explain changes to auditors and managers, as well as contributing to building an audit trail.
The ultimate goal of this step is to create a process for tax compliance that can be repeated and automated, which is where technology enters the picture.
Technology
As the concept of a data management roadmap becomes clearer, tax professionals are encouraged to consider the journey to be taken, involving three stages:
Now – internal alignment and cross-functional meetings;
Next – process overview and creating a data strategy; and
Later – leverage technology and create a tax technology roadmap.
The ‘later’ stage of turning to technology for a solution is becoming an imperative rather than just an option. Ryan says: “With the increasing complexities – including an ever-increasing number of tax calculations to be done, and more quickly, without additional people resources – you really need to be looking at a software platform, and one ideally where you can access that data once and use it for various tax returns you need to file, and this is where technology can come in.”
Consideration of a pillar two solution
With the utilisation of technology presented as the final step in establishing a streamlined data collection, analysis, and reporting process, the second webinar provided a demonstration of the Wolters Kluwer CCH Integrator platform, which offers a one-stop, integrated solution in addressing pillar two in particular.
The platform offers adaptation to local rules, comprehensive analytics, and the integration of country-by-country reporting, and was showcased by Lucia Higgs, consulting services manager, enterprise software, at Wolters Kluwer.
Pillar two has been built on the OECD Global Anti-Base Erosion (GloBE) Model Rules and allows for updates in local legislation as it is enacted. With well over a hundred overlapping data points to determine pillar two top-up tax liabilities and related disclosure requirements, MNEs should already be taking action to ensure they are ready.
The flexible structure of CCH Integrator, designed and built by Wolters Kluwer, allows adaptation to evolving local rules, reporting and dashboard features for comprehensive analytics oversight, and the capacity to integrate global tax provisioning, country-by-country reporting, and pillar two processes.
Lucia shared insights on:
A guided workflow to manage the overall pillar two process;
An ERP agnostic data capture mechanism, allowing inputs from multiple sources, including automated upload and web-based questionnaires, leveraging mapping functionality to create consistent results;
A pillar two calculation engine to analyse your GloBE effective tax rate and top-up tax, providing transparency and creating an audit trail, with inbuilt data validation and analysis;
The decision trees that are an integral part of CCH Integrator; and
An example of a data store, including reference to some of the data points needed for pillar two.
The time to act is now
Tax teams are being placed under mounting regulatory pressure and having to source and manage an increasing amount of data, with the above poll indicating that many organisations are at an early stage of adapting to the challenges. CCH Integrator offers a potential solution to these challenges, with an eye on the new compliance requirements of pillar two in particular.
About Wolters Kluwer
Wolters Kluwer is a global leader in software and knowledge solutions for corporate tax professionals. Used by major corporations in 80 countries, including 40% of the ASX Top 100 and the ‘big four’ globally, Wolters Kluwer CCH Integrator is a multi-award-winning global tax compliance and reporting platform that enables greater efficiencies, reduced risk, and deep data insights to stay ahead of the competition.
