Group tax functions’ five value drivers in the age of pillar two

The tax function’s value drivers may vary, but the overarching questions are “what financial efforts are possible (or desired by the business)?” and “how are its value creation goals defined?” The OECD framework on global minimum taxation (pillar two) poses challenges – such as complexities of data collection, implementation of common laws in different jurisdictions, and ERP changes – for most companies that fall within its scope and will significantly influence and transform not only corporate taxation, but also the tax compliance and advisory support required of service providers.

These pillar two rules are highly complex and subject to constant changes and adjustments, such as the administrative guidance the OECD publishes regularly. The guidance contained more than 140 pages in its June 2024 publication alone, followed by a fifth guidance in January 2025.

Services related to pillar two are particularly suitable for a Tax Operate model in which a third-party specialist ‘operates’ one or more functions or workstreams on a company’s behalf in a co- and/or outsourcing arrangement. Through its adaptability and expertise, the operator can overcome the challenges associated with implementing these global standards and guide the company through the complexity and dynamic nature of tax regulations.

Pillar two has the potential to create a consistent tax environment for businesses worldwide, but the rules are perhaps too complex to meet purely by using existing technology. Because of local implementation requirements – the qualified domestic minimum top-up taxes (QDMTTs) – affected companies are forced to collect data centrally, and then to adapt it again for local purposes, which requires not only general pillar two expertise, but also expertise in the applicable local country implementations.

This article discusses five value drivers for the global group tax function in the context of pillar two.

Governance generally involves oversight and control of technical and non-technical processes and information, general transparency, and management of risks and opportunities within the group tax function’s remit. Because of pillar two’s complexity and its associated challenges, it may be necessary to expand existing governance structures. It helps, of course, to build on existing resilient structures, where possible and/or necessary.

Just as the existing group tax reporting depends on the quality of information provided by its subsidiaries, it applies all the more to the global minimum tax. Pillar two does not only affect the accounting and tax departments of companies; the OECD’s rules on global minimum taxation are so far-reaching that board committees around the world are also dealing with them seriously. Deloitte’s Tax Transformation Trends 2023 research found that pillar two is also a factor being considered for tax forecasts, M&A transactions, effective tax rate planning, and many other areas.

At the same time, global tax functions need to coordinate the preparation of minimum tax reports – GloBE information returns (GIRs) and pillar two tax returns worldwide, which, in turn, need to be checked and transmitted to the respective local tax authorities by their required deadlines. The added complexity posed by additional pillar two obligations (QDMTT) will therefore likely lead to a significant increase in effort and compliance responsibility for in-scope companies.

However, pillar two should also offer the opportunity to gain new insights into a company's global tax position and to review its tax structure. Transparent reporting on a fair and appropriate distribution of profits and tax payments worldwide can improve the company’s reputation among stakeholders and customers.

The additional reporting obligations and new processes needed to meet those obligations require a great deal of maintenance and monitoring. The additional effort to achieve transparency and to control communication flows are leading many companies to consider an out- or co-source model for pillar two compliance and reporting.

The demands on talent – both new and experienced – and the ways in which tax functions operate have changed significantly over recent years, bringing challenges with them. Companies usually plan their resources proactively, and the question therefore arises as to whether resources in the next three to five years will be sufficient to meet the needs related to pillar two. Companies may need to consider conducting a cost-benefit analysis of handling pillar two in-house versus teaming with an external service provider (the ‘build or buy’ concept).

For many companies, the challenge and associated costs of maintaining in-house specialists in several countries while also investing in new technology-enabled systems prove to be higher than working with a service provider. In fact, 40% of respondents to the Tax Transformation Trends 2023 survey were considering outsourcing services as a cost-cutting strategy that year, and more companies are outsourcing parts of the corporate tax function as a direct result of the pillar two rules.

Data is the key to optimising end-to-end processes. Standardised data and the subsequent process automation can increase efficiency. In reality, however, most companies have not made the necessary transformations in the past to optimally benefit from this. Meanwhile, two major factors are driving a move towards data granularity:

• The introduction of pillar two is leading to a rethink of the finance organisation and moving the profile of tax higher up the corporate agenda; and

• There are major finance transformations of ERP systems taking place, leading companies to rethink the granularity of the chart of accounts or the contextual information in the accounting record.

The data requirements themselves are also largely challenging for pillar two calculations in terms of quantity and complexity – the timeline for systems and processes to be fit for purpose is tight. The data points that can at least be queried for pillar two calculations far exceed any previously existing reporting regime. Many companies will already have performed an analysis of the hundreds of data points needed but will now need to start closing the identified gaps to be able to guarantee completeness in a later compliance process. Each data point included in the (ideally, automated) collection process to create the GIR must be identified and subjected to sufficient controls to ensure sufficient quality.

Even in the case of an outsourced pillar two compliance process, data collection will remain a challenge for the multinational groups in scope, as the quality and accuracy of the database must still be guaranteed by the company.

The planning and optimisation of horizontal and vertical processes within the framework of a Tax Operate approach will support the group tax function in fulfilling the company’s tax obligations and tax strategy sustainably. It is therefore important to have a thorough understanding of these interactions.

Companies face procedural and technical complexity in the face of imminent pillar two filing deadlines, reflected in data collection and subsequent compliance processes. External consultants are often already called upon for support for end-to-end implementation projects. Depending on the size of the company, these projects should be started early and pursued vigorously.

Pillar two not only needs a completely new reporting process, but also integration into the existing process cycles of tax reporting. While the resources of the tax function are usually already more than fully utilised in the provision of tax support for quarterly, half-yearly, and annual financial statements, additional calculations for pillar two must now also be made, often within short timeframes. This is not only complex from a technical point of view, but also procedurally stretching.

The governance, data, and processes value drivers can be supported by technology to generate efficient working methods and optimal processes. From a technology standpoint, pillar two does not initially seem to pose a challenge; after all, it is ‘only’ another tax calculation with certain additional and offset amounts.

Tool solutions are already available for this purpose, but simple bolt-ons to existing ERP systems may not be sufficient for the end-to-end process, especially if the organisational structure is complex and if the bolt-on solution does not provide actual filing capabilities in all the jurisdictions in which the company operates. Regardless of the requirements (e.g., adding modules from the company’s existing software provider or procuring new systems), it would be prudent to make the selection of the calculation solution at an early stage, and weigh up the build or buy options. If, for example, the company considers processing the pillar two declaration via an external service provider, an in-house calculation solution may no longer be necessary.

Technology is, however, crucial for the data wrangling part of pillar two: supporting the process of preparing source data for further processing; i.e., the actual calculation. Only with the help of technology can the various data sources required for a complete pillar two calculation be compiled in a standardised, efficient, and error-reduced form for further processing.

When assessing the value drivers of governance, data, talent, processes, and technology, combined with a completely new and complex compliance obligation, pillar two is the catalyst through which tax functions worldwide are finding the operate model favourable for compliance, mitigating some of the risk of non-compliance. Many are also considering this model as a short- to medium-term approach until the rules are embedded fully, at which point some aspects can be brought back in-house (a ‘build, operate, transform, transfer’ approach).

It is assumed that AI will have a major impact – most likely changing the day-to-day technical work significantly. Data will play an increasingly important role, and is expected to improve in quality and granularity, all through the further development and use of AI. Together, these two factors will make it possible to carry out analyses and forecasts that have not yet been possible and thus significantly and positively change the risk and control environment of a company.

Considering the technical framework conditions, the globalisation of tax law will likely continue to advance despite pillar two not being adopted in all countries, and thus the professional demand will probably be more extensive. This is where AI plays a positive role again: it may help to extend the capabilities of professional advisers and to embed the latest regulations in their analyses.

In a world where global compliance requirements and transparency are likely to continue to increase at pace, the future shape of the tax function will need to adapt. It may be that companies increasingly lean on the operate model and place more responsibility on a third-party specialist to help them to keep up.