The role of technology in addressing Pillar II

Pillar II, also known as the Global Minimum Tax, is a series of interlocking rules applying to large multinational groups located in one or multiple jurisdictions with a consolidated revenue over €750 million. The rules apply as early as 1 January 2024.

The rules aim to ensure that a minimum level of tax is paid in jurisdictions where multinationals operate. Under Pillar II, if the effective tax rate in a jurisdiction falls below 15%, additional top-up taxes will be levied to bring the rate up to the minimum of 15%.

The Pillar II rules are highly complex and will require immense efforts, resources, and time.

Technology can play a crucial role in the implementation of Pillar II, and can help streamline processes, improve accuracy, and ultimately, ensure compliance. By introducing automation, technology can be used to enable real-time calculations and simulations for Pillar II purposes ensuring that the most optimal tax decisions are made.

The complexity of the Pillar II rules requires multi-disciplinary collaboration across tax, accounting, consolidation, HR, and finance departments. The use of the right technology enables the same information to serve different purposes, enhancing efficient collaboration and flexibility across teams, regardless of their locations.

When evaluating technology options for Pillar II, several factors should be taken into account to identify the optimal solution for the group:

Although various technologies and programs may address some of these functionalities, it is recommended to choose an EPM that incorporates as many of these functionalities as possible.

Successful tax transformation journeys require a harmonious blend of tax expertise, accounting support, and innovative technology. To help companies navigate complex tax technology and transformation projects, KPMG applies the Powered Tax Methodology which serves as a beacon for organizations embarking on the Pillar II technology journey.

Our proposed methodology typically consists of five phases:

KPMG has extensive experience in deploying innovative technology solutions to address complexities related to Pillar II. We adopt a multi-disciplinary approach by combining our expertise in technology, tax, and accounting to enable a holistic approach to Pillar II.

Considering the various external tooling/technology options on the market (for example, SAP PaPM, SAP Analytics Cloud, Oracle, CCH Tagetik or AMANA GTC), KPMG can support in vendor selection, providing an overview of the different functionalities, features, and solutions of each tool – while considering the needs of the group based on its ERP and technology environment. Once a solution has been chosen, as part of the implementation of the tool, our technology experts can tailor the technology to integrate the Pillar II solution into your processes and reporting schedules.

Recognizing the critical role of Pillar II in shaping the global tax landscape, KPMG has also heavily invested in developing a custom solution that addresses the complexities of these new regulations. KPMG’s BEPS 2.0 Automation Technology (KBAT) will assist with the end-to-end Pillar II compliance process. The tool will support client needs with modelling, planning, and compliance, from data ingestion through to filing of the GloBE Information Return, with insights, oversight, analytics, and controls over the process. Key design principles in KBAT include a flexible data ingestion (from structured data extraction to smart questionnaires), modelling, planning, provision, and compliance readiness, as well as end-to-end capability from Safe Harbours, election management to detailed calculations.

While a tool may allow for automated calculations based on the Pillar II rules, KPMG recognizes that the Pillar II rules are still changing as jurisdictions adopt the rules and issue additional clarification and guidance. Therefore, KPMG Tax experts closely monitor these international developments, and can assist with addressing these changes in the tool where necessary. KPMG’s multi-disciplinary approach ensures comprehensive coverage for groups, aiding in compliance with Pillar II rules and reducing risk exposures across different areas.

Reach out to us to find out more about how KPMG can help your organization navigate Pillar II.

Authors: Lorena Canterini – Manager, Tax Technology, Maximiliaan Geeroms – Manager, Corporate Tax, Inus Botha – Manager, CFO Advisory Services