How finance teams can tackle the challenges of Pillar 2
Challenge 1: Gathering data
Gathering data for Pillar 2 is significantly more complex than for traditional tax calculations. Finance teams face tasks including:
- Consolidating data from various countries with differing accounting standards
- Harmonizing ERP and local accounting systems
- Ensuring that data quality remains high, as incorrect or inconsistent data can mean an inaccurate minimum tax report.
Solution through software: The answer? A central data management platform that integrates and standardizes various data sources. Automating data validation reduces the risk of incorrect figures slipping into calculations. This enhances accuracy and saves time in error detection.
Challenge 2: Complex calculation methods
Calculating the effective tax under Pillar 2 requires:
- Checking jurisdictions and joint venture groups for potential safe harbour simplifications
- Determining GloBE income and adjusted recognized taxes at the business unit level
- Exercising voting rights that can significantly impact the calculation results.
Solution through software: Pillar 2 tools facilitate calculations on the level of jurisdiction, subgroups, and individual constituent entities. Thereby, they free your tax department to focus on meticulously selecting the input data. These tools also allow for testing various voting options and simulating how they impact the minimum tax. This empowers finance teams to make well-informed decisions.
Challenge 3: Country-specific tax regulations
Having to comply with the tax regulations of multiple jurisdictions at once is among the most difficult challenges a tax team regularly encounters. In this context, even a small error can have huge financial and legal consequences.
Software solution: With Pillar 2 tools, you can configure varying rules for calculating national supplementary taxes in the system, allowing you to create reliable country reports. You can also configure the integrated compliance checks to detect potential anomalies early on and report them before they escalate into issues.
Challenge 4: Complex processes
Many companies lack systems that meet the requirements of Pillar 2:
- Without seamless integration, siloed solutions stand in the way of data exchange and increase the risk of errors.
- Without well-developed processes and system solutions, coordinating with local stakeholders becomes challenging.
- Manual processes are time-consuming and prone to error, which reduces efficiency.
Solution through software: Manual processes and isolated systems should be reduced to a minimum when it comes to Pillar 2 calculations. They put pressure on your company tax department's already limited resources and increase the risk of errors. Effective Pillar 2 tools integrate seamlessly with standard ERP systems and consolidation tools, streamlining data flow. Consistent templates and workflows enhance collaboration between departments and country managers.
Challenge 5: Time and resource management
The plethora of tasks – year-end closing, budget planning, and Pillar 2 reporting – can stretch even the best teams to their limits.
Solution through software: Using platforms with project management features provides transparency over all upcoming tasks and deadlines. Clear responsibilities, realistic schedules, and regular status updates keep the team on track. Software solutions assist by streamlining workflows and highlighting bottlenecks.
Challenge 6: Submitting a minimum tax report to the tax authorities
Ultimate parent companies and designated filing companies must prepare the first minimum tax reports as XML files and submit those files to the appropriate tax authorities by mid-2026.
Solution through software: The Pillar 2 tool directly generates the XML file for the global minimum tax report without the need for additional interfaces. It also establishes an interface to the tax administration, ensuring that the transmission is standardized and verified.
