The introduction of the OECD's Pillar 2 framework presents unique challenges for businesses.
Internal stakeholders such as CFOs and Audit Committees, as well as external stakeholders such as tax authorities and group auditors will require assurance that these challenges have been adequately addressed.
How can you, as a tax leader, ensure that you can demonstrate that you’re in control of your organisation’s approach to Pillar 2? Firstly, let’s identify some of the challenges.
With some of these challenges in mind, how can you demonstrate that you’re in control?
Stakeholders will expect Heads of Tax to be able to present a clear plan on how the group intends to comply with Pillar 2.
The plan should highlight the investment in people and technology that is required and bring to life any unique organisational challenges associated with compliance.
A roadmap to compliance should cover the breadth of activities required to reach a point of compliance, from training finance teams to data readiness, technology implementation, testing, compliance and reporting activities.
Below: the breadth of activities that need to be considered when planning your response to Pillar 2
Pillar 2 compliance will inevitably absorb tax function resource. Being able to point to a Pillar 2 process owner who is accountable for the organisation’s response to Pillar 2 will help to provide assurance to stakeholders.
Similarly, there’s a need to agree who will be responsible for different elements of Pillar 2 readiness (including data readiness and technology selection and implementation) as well as business as usual activities.
Documenting the above within a RACI matrix is a straightforward way to demonstrate to stakeholders that you have carefully considered your resource allocation and that any gaps in responsibilities have been identified.
Below: an extract from a RACI Matrix
Like many tax processes, Pillar 2 compliance is heavily reliant on wider finance and accounting processes, this is particularly the case in respect of sourcing data.
Raising awareness through the provision of training and providing clear instructions on data requirements can help you to bridge the knowledge gap.
Group auditors and tax authorities will expect governance to have been embedded into Pillar 2 processes.
Embedded tax governance will include a documented end-to-end process map, Standard Operating Procedures (SOPs), a RACI matrix outlining responsibilities and accountabilities for different elements of the Pillar 2 process and importantly, documented controls.
The controls should be precisely drafted, focussed on mitigating specific risks such as the failure to produce a qualified CbC Report and independently tested e.g. by internal audit. Where organisations already have a Tax Control Framework, Pillar 2 should be incorporated in the same way as other taxes.
Below: the scope of activities required to embed effective tax governance within Pillar 2 processes.
External advisors and outsourcing providers will likely play a role in Pillar 2 compliance for most organisations.
These third parties can perform a range of functions including assessing data readiness, supporting with technology implementation but also preparing GIR and QDMTT returns.
A Key question for organisations who use multiple outsourcing providers is determining which of the providers will take the lead in preparing QDMTT returns within each country; where different providers are preparing the Corporate Tax returns, how does that impact the organisation’s ability to reconcile the two types of return in the same way that a tax authority could?
Pillar 2 presents an ideal opportunity to reflect on your tax operating model.
As explained above, data accuracy and consistency are likely to be concerns for most organisations. Having a process in place to review and challenge source data and importantly, address data quality and consistency issues quickly will be a significant advantage for your organisation.
Where groups are preparing GIR and QDMTT returns in-house, technology will play a key role in the sourcing and consolidation of data. Having identified a Pillar 2 solution, it will be critical to assess whether the data inputs are available for the solution to function effectively but also to test the solution before it is relied upon to identify any issues. It’s often the case that only once the solution is being implemented that data gaps, quality and consistency challenges are identified.
Businesses will need to focus on identifying solutions that can be easily integrated with existing systems, including consolidation platforms and ERP environments, to ensure seamless data flow and reporting accuracy. These solutions should be adaptable to the organisation’s specific operational and compliance needs, supporting both current and future-state tax processes.
KPMG offers end-to-end support for BEPS 2.0 and Pillar 2 compliance, including impact assessments, roadmap planning, data readiness, technology enablement and managed services. Our global tax professionals help organisations navigate regulatory complexity, implement effective governance and deploy the right technology solutions to meet compliance obligations with confidence.
With increasing scrutiny on Pillar 2 from tax authorities, auditors, and internal stakeholders, tax leaders have a critical opportunity to demonstrate control and preparedness. While approaches will vary across organisations, showcasing a well-planned compliance strategy, underpinned by robust governance and aligned with your Tax Control Framework, can provide the confidence your stakeholders expect.
KPMG’s BEPS services are designed to support you at every stage of your Pillar 2 journey, from readiness assessments and impact analysis to implementation and ongoing compliance. Explore how KPMG can support your Pillar 2 compliance and governance strategy.
