What is Pillar Two?
Pillar Two introduces a global minimum Effective Tax Rate (ETR) via a system where multinational groups with consolidated revenue over €750m are subject to a minimum ETR of 15% on income arising in low-tax jurisdictions.
When does Pillar Two come into effect?
The OECD has recommended that the Pillar Two rules become effective in 2024, with the exception of the Undertaxed Profits Rule (UTPR) which is recommended to become effective in 2025. Most EU Member States have transposed the Directive into their domestic law before 31 December 2023, including Belgium. Many other countries are working on their domestic rules to implement Pillar Two. Nevertheless, many multinationals already are subject to Pillar Two anyway since the transition rules capture certain transactions occurring after 30 November 2021.
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A New Global Tax System: Are you #PillarTwoReady?
Apart from a potential tax cash impact resulting from additional taxes (so-called top-up taxes), this new 15% minimum tax will also require MNEs to collect a large number of data points and significantly increase the compliance burden.
In order to provide relief to MNEs in respect of their Pillar 2 compliance obligations as they implement the rules, the OECD introduced Transitional Safe Harbour provisions. The Transitional Safe Harbour excludes from the scope of Pillar 2 an MNE’s operations in lower-risk jurisdictions in the initial years if certain conditions are met.
How will Pillar Two impact your business?
The impact of Pillar Two on the end-to-end operations of the tax department is monumental. Companies will need to ensure they have the data needed to forecast and model in the interim as well as the data to maintain reporting and compliance requirements upon enactment. In addition to tax, there are several key stakeholder groups within the organisation that will be impacted by the impending changes.
Groups within scope will need to understand, evaluate, and model the impacts of Pillar Two across the organisation. This includes, but is not limited to, assessing the additional data and reporting/compliance requirements, evaluating the existing technology ecosystem and capabilities, establishing processes and controls, preparing and training resources, and managing stakeholder expectations.
On 14 December 2023, Belgium approved the final law introducing a minimum tax for multinational companies and large domestic groups (Pillar Two). By doing so, Belgium introduced Pillar Two (Qualified Domestic Minimum Top-up Tax and Income Inclusion Rule) for fiscal years beginning on or after 31 December 2023.
How can PwC assist you in the road towards Pillar Two readiness?
- Operational Readiness
- Data Strategy: PwC’s Data Input Catalog
- Impact Assessment: PwC’s Market Taxation Analyser tool
- Quantitative Analysis: PwC’s Pillar Two Engine
Operational Readiness
Pillar Two will have a pervasive impact on an organisation’s financial operating model requiring early stakeholder engagement and substantial budget and resource allocation to address the multitude of challenges. Organisations must ask themselves if their current data model, systems, technology, and processes can support the requirements introduced by this new international tax framework.
PwC professionals are happy to help determine how to access the financial data needed to comply, identify gaps in the data needed for reporting, and reevaluate operations given the anticipated law changes in many countries.
Data Strategy: PwC’s Data Input Catalog
Identifying the data requirements and developing a comprehensive data strategy should be one of the first steps that taxpayers take in preparation for Pillar Two. The variety of data sources owned by a diverse group of stakeholders makes the collection and synthesization of the data tremendously challenging. Early cross-functional engagement is critical to ensure that the appropriate data and system owners are aware of what will be required under Pillar Two, why it’s important, and how it may impact them going forward.
PwC professionals are happy to help identify the data requirements and develop a data strategy rooted in systems and processes that can sustain reporting and compliance requirements upon enactment.
PwC’s Data Input Catalog (October 2023) is at the centre of PwC’s end-to-end process for Pillar Two. The Data Input Catalog defines the data requirements for Pillar Two, giving MNEs a comprehensive understanding of the amount of work that lies ahead of them and can help MNEs anticipate the unique challenges they will face. Acting as the foundation to develop an extensive data strategy, assess operational preparedness, or determine a modelling approach, PwC’s Data Input Catalog is the core to Pillar Two readiness.
Impact Assessment: PwC’s Market Taxation Analyser tool
PwC’s Market Taxation Analyser tool (MARTA) tool is an interactive tool to quantify and visualise the anticipated financial impact of the introduction of Pillar Two in various scenarios. MARTA forms an important step in preparing for compliance with the rules. Moreover, the tool shows whether the Transitional Safe Harbour provisions are applicable to the MNE Group and which test(s) are met by which jurisdiction.
Quantitative Analysis: PwC’s Pillar Two Engine
PwC’s Pillar Two Engine is a structured model for assessing the impact of OECD Pillar Two, configured to support the inconsistent and unique adoption of Pillar Two rules around the world and allow for flexibility as those rules continue to evolve. Multiple different variations and interpretations of local rules will require an iterative modelling process for Pillar Two calculations. PwC’s Pillar Two Engine is flexible to allow for various data structures/sources. It also prioritises the key adjustments/elections. The modelling provides compliance and provision grade calculations as well as data visualisation to identify key territories where there is a risk of an OECD Pillar Two tax charge.
Our engine utilises a centralised database with a vetted calculation engine in consultation with PwC Global technical and policy leaders. The database is dynamically updated for rule changes and new legislation in each jurisdiction.
PwC's Pillar Two Engine
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