Tax compliance and provision reporting for the Organisation for Economic Cooperation and Development’s Base Erosion and Profit Shifting (BEPS) 2.0 Pillar Two global minimum tax (GMT) demands companies to re-evaluate how financial data is gathered, managed and reported across different jurisdictions. Unlike many traditional tax law changes that can be implemented with incremental changes to existing processes, many multinational entities (MNEs) need to make fundamental changes to their tax compliance and reporting operating models to address Pillar Two.
More than 145 member jurisdictions have agreed to the BEPS 2.0 Inclusive Framework, including the Pillar Two 15% GMT regime. To date, 41 jurisdictions have enacted local versions of the GMT (see the latest updates in the EY BEPS 2.0 Pillar Two Developments Tracker). While continued enactment of the GMT into local laws will vary, an analysis by EY teams suggests more than 85% of all MNEs with group revenues of EUR 750 million or more are impacted by GMT in at least one jurisdiction in 2024 and more than 95% will be impacted by GMT in at least one jurisdiction by 2025.
GMT, sometimes referred to as the GloBE, is complex and introduces several new concepts as part of the new tax system. The GMT requires companies to address quality and availability of data, as well as the processes for preparing Country-by-Country Reporting (CbCR) and aggregating financial and tax data across different jurisdictions. Tax departments may need to take a more active role in financial reporting, especially for groups using local (or statutory) financial statements for their CbCR, which determine whether a MNE qualifies for transitional safe harbor provisions. Regardless of the level of tax involvement in financial reporting, tax and finance teams will have to work more closely together to gather and sensitize relevant data.
Of 1,600 finance and tax leaders surveyed in the 2024 EY Tax and Finance Operations (TFO) survey, 42% reported that compliance with tax and regulatory requirements such as BEPS is a top priority for their tax function over the next three years. But many MNEs do not have a pre-existing framework for Pillar Two reporting. Instead, organizations will need to develop a repeatable, adaptable process that aligns with legislation enacted across multiple jurisdictions.
Analyzing each of the reporting dimensions in which Pillar Two must be incorporated and developing a clear plan to define the people (roles and responsibilities), processes, data management, technology and governance needed for reporting and compliance will be key to this process. Performing a comprehensive analysis will enable companies to design a sustainable operating model that includes GMT in business forecasting, interim and year-end group financial reporting, statutory reporting and tax compliance. Achieving efficiencies and desired precision across these reporting dimensions will require most companies to use new technologies that can accommodate varying levels of data quality and availability for each phase of work.
Aggregating data across the organization may require finance and tax to develop new controls over data collection, analysis, calculations and reporting for the GMT. Breaking down historical organizational and reporting silos can be challenging and may lead to new questions around transparency between different business units, data privacy and access rights, as well as personnel responsibilities and governance.
Planning the BEPS journey
The journey toward a sustainable GloBE reporting operating model may take multiple years as additional jurisdictions enact GMT laws. This timeframe may be further extended as the Organisation for Economic Cooperation and Development issues further administrative guidance, temporary safe harbors expire and local controversy and administrative practices mature. Companies should act now to set themselves up for future success. There are tangible steps businesses can take to begin developing an operating model that will support long-term Pillar Two reporting, regardless of whether the organization is liable currently for GMT.
As legislation and technology continue to evolve, flexibility and adaptability is key to manage disruptions resulting from business or tax changes. An efficient and successful Pillar Two operating model is one that aligns to the wider objectives of the organization and of the tax and finance functions. For example, if an organization uses shared service centers to support finance operations, that infrastructure should be leveraged when designing the Pillar Two operating model.
Companies should dedicate ample time to the design phase of implementing a GMT operating model to meet their long-term needs and requirements. Organizations that do not have a centralized tax reporting model may require additional effort to standardize existing processes and remediate data gaps to enable efficient GMT compliance and reporting.
Here are six steps to consider when preparing for the organizational impact of GMT.
1. Know the reporting requirements
Companies should begin by understanding the Pillar Two reporting requirements for each jurisdiction in which their organization operates. It is important to understand the full scope of reporting obligations, the data required for each jurisdiction and the tools and templates that will be leveraged for GMT compliance and reporting. It is essential to align these requirements with internal systems and processes and to maintain clear documentation and controls.
2. Apply a risk-based approach
Complete data may not be available for forecasting, group reporting or statutory reporting. Establish parameters to apply a risk-based approach to GMT reporting to meet the needs and objectives of each reporting dimension. Refine the precision of reporting along the reporting life cycle from forecasting to compliance as data quality and availability improves. Make sure tax and finance teams agree on the parameters of the risk-based approach to ensure internal control standards are met.
3. Understand data, processes and systems requirements and gaps
Conduct a thorough review of the organization’s current financial systems to identify gaps in their ability to produce data required for GMT reporting. In the 2024 EY TFO survey, 83% of respondents said they would need to make moderate to significant adjustments to their source data to develop tax-ready information to comply with Pillar Two. Organizations should consider new, creative alternatives to resolve data gaps and make decisions that are best for the organization as a whole, not just headquarters or the tax and finance departments.
