HMRC have recently indicated that they consider Pillar Two liabilities to be caught by the SAO legislation, so it has never been more important to have the right support and processes in place to ensure these requirements are met.
As 2024 approaches, the specifics of Pillar Two are still becoming clear, posing challenges for tax experts who are planning for evolving regulations. Amidst this uncertainty, it is crucial to find reliable information and practical approaches. We hope to provide clear insights where possible and suggest ways to deal with the uncertain aspects. You will learn about what we know so far regarding Pillar Two, find guidance for your preparations, and see how ARKK’s tax automation platform could help navigate the complexities of compliance. With our support, you can make sense of the uncertainties and approach Pillar Two with confidence. Click here for more information.
What comes first: Disclosure
Most in scope businesses will be required to disclose any material effects of Pillar Two for year ends on or after 31st December 2023. With that in mind, would you be comfortable filling in the blanks on this disclosure?
“As of 31st December 2023, most of our group entities either exceed the 15% tax rate benchmark or have applied the Pillar Two safe harbour rules. In certain jurisdictions, notably Country _ and _, we anticipate potential impacts from this tax, given their current average effective tax rates ranging from __% to __%. Our initial evaluations indicate a potential additional Pillar Two tax exposure for the group, amounting to between __% and __% of our overall tax expenses. It is crucial to highlight that the effective tax rate calculations, as per paragraph 86 of IAS 12, do not align with the Pillar Two legislation's requirements. Specific adjustments in the legislation could modify these rates, potentially exempting subsidiaries from the top-up tax or significantly altering the impact” Ian Bowden, Tax Partner and Head of BDO’s Tax Automation & Innovation Practice.
Modelling for Safe Harbours: 2023 Data Required
Whilst several businesses have carried out provisional safe harbour calculations using 2022 data, this will need to be repeated using 2023 actual data to complete the Pillar Two disclosure. All the modelling work carried out will have to be redone and scheduled into an already time pressured year end timetable to provide a robust and auditable disclosure.
With the guidance evolving, and the disclosure figures needing to come from your most recent period, many companies have invested in software to enable data capture, calculation and reporting to ensure ease and compliance.
Preparing for Pillar Two: the Data Challenge
In today's dynamic business landscape, it is imperative for tax and finance leaders to set the tone from the top around the importance of Pillar Two. The framework involves the task of handling vast amounts of data, originating from multifunctional teams spread across diverse jurisdictions. The nature of this initiative underlines the need for a coordinated effort, particularly from key departments such as finance, tax, legal, and IT. This team should ideally operate under a seasoned project manager with adeptness in change management and stakeholder engagement.
Impact of Pillar Two: Understanding the Intricacies
For businesses, now is the time to begin their in-depth Pillar Two impact analysis. The multi-layered complexity of Pillar Two is evident: the requirement of more than 100-400 distinct data points per entity (running into thousands for a multi entity group), intertwined with disparate data sources, signifies an onerous undertaking. This vast process entails:
- Detailed disclosures for the 2023 financial statements, readying them for meticulous auditor scrutiny.
- A comprehensive review of how data is accessed, alongside possible improvements to make data gathering and compilation more efficient.
- Assessing existing technology, recognising that single-purpose tools are likely to fall short, thus a comprehensive platform is essential to satisfy the diverse data requirements for Pillar Two.
- Considering reorganisations and group simplifications, which could be tax neutral today, but potentially taxable under Pillar Two.
- Considering transitional provisions and the ongoing potential adverse consequences of asset transfers and the requirement to track these.
For businesses to deliver Pillar Two successfully initiating early assessments is crucial, providing enough time for essential tweaks to systems and processes.
Pillar Two Linchpin: Data Assessment
Pillar Two focuses heavily on data, highlighting the need for good data management to address its challenges. This includes:
- A detailed assessment to identify and rectify data gaps and data quality issues, both of which can severely impede accurate reporting.
- Rigorous data mapping, including a multitude of data points, substantial number of subsidiaries, varied source systems, and inherent process intricacies all from a wide range of different departments.
- Early and proactive IT involvement for efficient data extraction.
- A robust audit trail for data transformation processes required for Pillar Two.
- Pillar Two calculations being systemised, transparent and easy to follow.
The Path Forward: Integrated Solutions
As organisations prepare for Pillar Two, the right technology and strategy is critical, one which solves the data issue. ARKK’s tax automation platform is at the forefront, ready to support tax and finance leaders and their teams through these changes, offering an efficient and cost-effective route to compliance. The platform ensures you can meet Pillar Two demands with certainty, benefiting from a system that is robust and intuitive.
To see how we can facilitate your transition to Pillar Two compliance or to ask any questions, please complete our contact form. Our team at ARKK is eager to address your Pillar Two concerns and discuss how we can aid in transforming compliance challenges into opportunities for growth and enhanced efficiency.
