Are your systems ready for BEPS Pillar 2?

In our experience, there are three core components that will need to be updated within finance and ERP systems for Pillar 2:

1. Chart of Accounts (CoA): Most companies will have designed and set up their CoA long before Pillar 2 requirements were established. So it’s is unlikely to cover many of the 250-plus data points needed for Pillar 2 calculations and compliance.
2. Legal entity master data: Pillar 2 requires a different set of legal entity master data, as well as the ability to track changes to the group over time. A finance transformation programme is also a chance to clean this data up, as much of what firms currently hold won’t be relevant to Pillar 2.
3. Tax reporting: You’ll likely need to redesign some tax reporting processes for Pillar 2 – e.g. to capture more granular deferred tax movements for certain balances. You may also need to adjust data within your enterprise performance management and financial planning and analysis systems. These can then be used to forecast the impact of Pillar 2 on your effective tax rate.

You might want to consider updating other relevant systems too, which may not currently form part of the finance transformation programme. Your consolidation and payroll systems, for instance, might need to be reconfigured to capture Pillar 2 data.

Whatever changes you decide to make must then be embedded via staff training, so that the finance and tax teams know how to use any new designs, codes and processes. Validation and exception testing – underpinned by AI technology – will also be valuable here, as they’ll help to identify incorrect use.

How can tax leaders take advantage of systems changes before Pillar 2 compliance begins? We’d recommend going through the following steps:

• Map all of the data points needed for Pillar 2 reporting. Find out which you already have access to, and where they sit within the relevant systems. Then identify which ones you’re missing.
• Define what you’ll need from your finance transformation programme – in terms of updating your ERP and finance systems to capture missing Pillar 2 data.
• Consider integrating broader tax processes into the transformation to drive greater value – such as corporate income tax and group tax provisioning, data on which will be required for Pillar 2.
• Build the business case for making these changes now – in terms of value, risk and efficiency. Acting retrospectively will prove more complex and expensive, and will risk compliance failures – leading to penalties, reputational damage and further scrutiny from tax authorities.
• Communicate these benefits and risks to all relevant stakeholders – your chief finance officer, finance transformation director, wider finance community and potentially your head of procurement.
• Once the business case is approved, provide your Pillar 2 requirements to your system integrators – then review, test and iterate the implementation.
• Don’t go it alone – Pillar 2 is highly complex, as are the implications for your finance and ERP systems. Bring in support from specialists who understand both the compliance requirements and the relevant technology systems.

Our global compliance and transformation experts can support you and your team at all stages of your Pillar 2 and finance transformation journeys.

We’ll work with you to define the Pillar 2 datapoints that apply to your business; identify which ones you already have; and see which you can capture within the transformation programme. We’ll help you to understand and document your data and functional requirements, and build the business case for systems upgrades. We can assist with the design of any new technology, whether deployed inhouse or by a systems integrator. And we can run the necessary testing and quality assurance for you.

Please get in touch to find out how we can aid your preparation for Pillar 2.