Navigating the practicalities of BEPS pillar two: key webinar insights

There has been a considerable increase in multinational enterprises’ (MNEs’) engagement with the OECD’s pillar two measures, according to the Wolters Kluwer BEPS Pillar Two Readiness Index Report for Q2 of 2024 that was discussed in a recent webinar hosted by ITR.

The report is based on interviews with senior tax and finance professionals from multinationals around the globe. During the webinar on September 3 2024, Michael Vassilieff, the global sales director for Wolters Kluwer’s CCH Integrator solution, presents the key findings and draws on his conversations with MNEs to break down some lingering pillar two myths and set out several practical steps to prepare for pillar two compliance.

Vassilieff opens the discussion by underlining the comprehensive nature of the research, before moving on to a particularly eye-catching statistic. "We've interviewed close to 1,000 multinational corporates across various jurisdictions," he says. "88% of respondents have initiated pillar two compliance. I remember when that was in the low 20s, so it's a really big increase over the last nine months or so."

An increasing number of MNEs have clearly begun to acknowledge the importance of adapting to the new legislative requirements, but this has also resulted in enhanced recognition of the main challenge. "Data collection continues to be the real pain point,” Vassilieff says. “You see that throughout the reports here, where 76% are concerned about the complexity of data collection, a 6% increase from the prior quarter. What that means is more businesses are getting around to pillar two and starting to look at it.”

Amid this increased action and greater general awareness of pillar two, Vassilieff believes that several misconceptions about BEPS pillar two still need to be addressed. Accordingly, one of the slides in the webinar is dedicated to ‘myth busters’, and he summarises the mistaken beliefs, and the reasons why they are flawed, as follows:

• "I'm in a high-tax country; it’s not relevant to me" – even companies operating in high-tax jurisdictions have compliance obligations that must be fulfilled;

• "I don’t have any top-up tax; I don’t need to file" – companies must still demonstrate compliance, even if no additional taxes are due;

• "I don’t need to file a return until 2026" – data capture starts on January 1 2024, so organisations should not delay their preparations for pillar two reporting requirements; and

• "It’s just a group-level issue; head office will handle it" – all departments must be involved in data reporting to support the new compliance efforts effectively.

When asked about the steps that MNEs are taking towards compliance, Vassilieff notes a marked change in mindset. “The conversation has shifted from ‘we need to look into it’ to ‘we're actually completing our risk assessments now,’” he says. This shift indicates that companies are moving beyond mere acknowledgment to taking concrete action.

One significant hurdle many companies face is securing internal buy-in from the broader business, and justifying the investment in compliance processes that is crucial for securing the necessary resources to adapt to the new regulatory environment. “Tax teams must convince finance teams that this isn’t just a new compliance task; it’s a fundamental change in how we operate,” Vassilieff explains.

For MNEs aiming to streamline their compliance processes, Vassilieff recommends forming working groups composed of subject-matter experts. “Those who are doing a really good job are starting early and forming working groups,” he says. “They understand their region and can report quite quickly.”

The adoption of technology is also vital for efficient compliance, and Vassilieff emphasises that pillar two should be integrated into existing tax technology stacks. “The tax market is full of tax technology, software, whether it's your tax provisioning, your country-by-country reporting, VAT, GST,” he says. “Pillar two is now another piece of that tax technology stack that people need to look into.

“There's a lot of data and a lot of work that we need to do beforehand. We see it a lot with our solution, CCH Integrator; organisations trying to pull everything all into one space. We've been on a journey of about two and a half years when it comes to pillar two and making sure our software is ready to help our existing client base and to help other organisations in the market.”

Organisations should, Vassilieff believes, evaluate their technology ecosystems, ensuring compatibility with their current systems to facilitate a seamless data flow. He makes no bones about taking the initiative in ensuring that software vendors are providing the necessary tools. “If you’re using software and you're moving forward, look at your current systems,” Vassilieff says. “Do they provide what you need? Whether that's Excel or a tax provisioning solution. Do a thorough analysis of your software vendors. Hold them to task. Are you helping me with pillar two? Is your solution pillar two proof?”

Vassilieff outlines a clear, step-by-step process for preparing for pillar two compliance:

• Start with what you know – begin by familiarising yourself with the OECD guidelines and local legislation;

• Assess internal conditions – evaluate the current state of tax provisioning and data collection practices within the organisation;

• Focus on the three Cs: capture, calculate, and communicate – how to capture data from various sources, calculate tax obligations, and communicate findings effectively across the business;

• Model calculations – companies should start modelling their calculations now, considering what their positions will look like in 2024 and beyond; and

• Evaluate technology solutions – analyse current software solutions and ensure they are capable of supporting pillar two requirements.

One of the key points Vassilieff emphasises is the extensive work required to prepare for pillar two compliance. Many companies may be underestimating the complexity and time involved. "The expectation is that it should be a light exercise, but the reality is that the time and effort required are huge," he says.

Furthermore, Vassilieff believes a significant portion of firms still lack a solid grasp of their data, which is crucial for effective compliance.

Looking ahead, Vassilieff predicts that pillar two will simply become ‘absorbed’ into the tax reporting package for MNEs. “Pillar two will just become part of your standard reporting,” he says, before suggesting that the €750 million threshold for compliance might eventually be lowered to bring more businesses within scope of the regulations.

Vassilieff also foresees a trend towards greater globalisation and standardisation in tax reporting practices. “Tax departments will have to evolve to standardise their processes across jurisdictions,” he says, reflecting on the growing complexity of multinational tax compliance.

In concluding the webinar, Vassilieff encourages firms to start their preparations now. “If you’re not prepared, the authorities are saying they are going to fine you, and no one wants to be in that position,” he says.

Engagement with advisers and technology providers, along with continuous education through webinars and information sessions, can significantly aid in navigating the complexities of BEPS pillar two, according to Vassilieff, who states: “Education is key.”

With the stakes high and the compliance landscape constantly evolving, the proactive steps organisations take today will define their success in navigating BEPS pillar two tomorrow.