Preparing for BEPS 2.0 Pillar Two Compliance
The OECD/G20 BEPS 2.0 Pillar Two initiative is rewriting the rules for global tax compliance. If your company earns more than €750 million in annual revenue, you’ll soon need to comply with the new 15% global minimum tax rate. It is a game-changer for businesses with a global footprint.
Countries like Japan, South Korea, Australia, and New Zealand have already introduced Pillar Two rules and others like Singapore and Hong Kong are catching up.
How will this impact your business? How can you adapt without disrupting your day-to-day operations? Read on!
What BEPS 2.0 Pillar Two Means for Your Business
Pillar Two ensures that large companies pay a fair share of taxes, regardless of location. For companies that fall within its scope, this means filing a detailed GloBE Information Return (GIR). This isn’t like the existing Country-by-Country Reporting (CbCR)—it’s much more demanding. With over 200 data points required, it’s no small task.
While the safe harbor rules offer a temporary reprieve, full compliance is on the horizon. The clock is ticking, and the time to act is now!
Safe Harbor Rules: A Helping Hand
The transitional safe harbor rules offer some breathing space. They let businesses use their existing CbCR processes to meet early compliance requirements.
One cannot, however, become complacent because this support is not permanent. Melvin Song, Head of Group Tax at CapitaLand Investment Limited, cautions: “Safe harbor rules buy time, but you’ll need that time to build the systems, processes, and strategies to handle the real challenges of Pillar Two compliance.”
Why Technology Is Your Best Ally
Let’s face it – trying to manage it all manually is just not viable. The sheer volume of data and complexity involved in this exercise, make automation a non-negotiable need rather than a needless luxury.
The key to simplifying Pillar Two compliance lies in building an integrated IT solution. Your systems for Finance, Accounting, and Tax Reporting need to work together seamlessly. It is not just a tax problem but a company-wide effort. Teams from Finance, IT, Legal, and even HR need to collaborate to make it happen.
A Simple Plan to Tackle BEPS 2.0 Compliance
Preparing for Pillar Two compliance might seem overwhelming. Let’s break down the process into clear steps to make it easier:
1. Discovery Phase:
Begin by figuring out where your data is, what’s missing, and who’s responsible for the lacuna. This involves engaging teams from across your organisation to ensure all bases are covered.
2. Design Phase:
Plan how your compliance system will operate. Can you adapt what you already have, or do you need anything new? Decide whether to tackle this in-house or seek outside assistance.
3. Implementation Phase:
Roll out your solution, test it, and train your team to use it. This process takes time, and most businesses take 6–9 months. So, don’t wait to get started!
Why XML Matters for Pillar Two and CbCR Compliance
XML plays a crucial role in simplifying compliance for both CbCR and Pillar Two filings. Its flexibility and ability to handle complicated data structures make it ideal for automating the reporting process. XML allows businesses to combine data from several systems, verify accuracy, and reduce manual errors. This streamlined technique is especially useful for managing Pillar Two’s complex data requirements.
Finding Opportunity in Compliance
Complying with BEPS 2.0 Pillar Two can be tough, but it is also a chance to enhance your company’s operations. The data gathered for compliance can serve multiple purposes, like
improving governance, supporting sustainability reporting, and aiding in strategic decision-making.
As tax compliance gets traction in the C-suite, your tax team gets the opportunity to demonstrate its value and play a more active role in driving your company’s strategy.
The Time to Act Is Now
Preparing for BEPS 2.0 Pillar Two isn’t just about ticking boxes—it’s about future-proofing your business. Using the right technology, creating a clear plan, and working closely with your teams can turn compliance into an opportunity to stay ahead.
Don’t wait for deadlines to loom. Start preparing now to handle these changes with confidence. Follow the DataTracks blog for the latest updates and insights to stay one step ahead.