Emma-Jane Milgate: In the UK Pillar 2 is not coming - it is here. And there's no longer a distinction between implementation and compliance. This throws up many challenges and risks for you as a tax leader, as you try to navigate this overlap into 2026 and beyond. There are a lot of complexities with dealing with those two processes, particularly with the stakeholders for Pillar 2. What do you see are the key demands from those stakeholders?
Demi Bulter: There are quite a lot of different stakeholders that Heads of Tax need to face, both internally and externally. Most of the Heads of Tax need to report directly into the CFOs. And from a CFO position, of course, they want to know the group's overall readiness of the Pillar 2 compliance, including the potential impact on the ATRs, from any potential Top-up jurisdictions. Also including the internal budgeting because this is a new tax, new compliance process.
John Georgiou: And it's important to recognise that there are internal and external stakeholders. And it's easy sometimes to ignore some of those external stakeholders, we are sometimes too internally focused, so you're right, this is the CFO internally, and this is the tax function itself. Also externally thinking about tax authorities like HMRC in the UK, but also other tax authorities across the globe, and auditors, group auditors, because both of those stakeholder groups are very interested in Pillar 2 compliance. Obviously, their focus is more on the core compliance and readiness. So from a tax authority perspective, for example, they'd be more interested in the end-to-end process and the governance of the end-to-end process, say, for example, are there formerly documented roles and responsibilities. Is there a RACI matrix perhaps, even documenting that? Are there controls in place around Pillar 2? And again, that should really capture the end-to-end process. Is someone in a position to test those controls? Maybe an internal audit function. It could be a third-party assurance provider. So tax authorities would really want to understand the governance around the interim process. And external auditors will also want to understand what governance is in place, particularly where the Top-up Tax is potentially material or there are other qualitative risks, which means that Pillar 2, by its very nature, is potentially a risk for the organisation. So they'll certainly want to understand the processes in place to accurately capture the Top-up Tax as potentially applicable to that financial year. So different stakeholders, but to a degree overlapping requirements, I think.
Kevin Tipton: What we're seeing now practically with local implementations of domestic Top-up Tax is actually there's a tension from a statutory materiality level as well, because the Top-up Tax calculation and the charging provisions mean that there will be an impact on the local statutory accounts, which will be typically audited to a lower materiality. So actually additional detail can sometimes be required to respond to those queries from the external auditor at a very granular local level as well.
Demi Bulter: With different rules implemented in different jurisdictions of how the overall Top-up Tax should be split between the group entities, that just adds complexity to your auditing process.
Emma-Jane Milgate: There are clearly a lot of demands coming from the stakeholders. What do you see are the key challenges and risks arising from those demands?
John Georgiou: So some of those risks and challenges will be more focused around the core compliance itself. So that could include data readiness challenges. Often as you implement the technology you start to tease out some of those data consistency issues. Technology integration itself can be a challenge in a number of organisations, particularly more divisionalised, decentralised organisations. But also there's a commercial element as well, right? Because you can find yourself inadvertently tripping up one of the safe harbours. And that could result in unexpected tax charges. So it's really, really important that tax leaders have got a clear tax policy that the organisation - so M&A teams for example, group reporting teams are clear on when they need to contact the tax function around potential transactions to ensure that they don't inadvertently cause a Pillar 2 Top-up Tax to arise, which was not expected.
Kevin Tipton: And on building on that point from both a stakeholder perspective and a risk perspective, many groups are still considering their response to Pillar 2 in terms of whether they want external support from an outsourced service provider, whether they want to buy in technology or build technology to manage Pillar 2 internally as far as possible. And that also means you need additional stakeholders involved in those discussions and those decisions such as legal, procurement and IT. There's an operational risk here in terms of actually, will groups be ready to comply based on the lead time that's required. To put commercial arrangements in place or to implement technology? Because there are lead times for IT, governance and approvals that an organisation also needs to navigate.
Demi Bulter: And don't forget the buy-in from the provisioning team and all of the actual tax compliance team that they are already working on their existing system, which all the process works perfectly, smoothly until you want to change something. It would just bring in so much disruption and waste people's time – but they wouldn't call it waste – for a new process. So you need to get buy-in from all the different internal stakeholders.
John Georgiou: There is potentially lots of disruption around implementing Pillar 2 process. Again, whether there are local business divisions, perhaps feeding the data, the group reporting functions, group tax functions and wider functions, and the point around readiness. And having a dry run of being able to operate a dry run is really important. It goes back to that points around providing assurance to key stakeholders. You'd want to be in a position really where you can demonstrate to a tax authority or to an external auditor that you have run a dry run process, and it has been successful, or where you have identified challenges that you've addressed those challenges that will help to provide them with confidence that you're in control of that process. Whereas if you're on the back foot, it's much harder to demonstrate that.
Demi Bulter: And the other additional risk and so linking to the data readiness as well, is the operating model like who is responsible for which data, who owns it, who is supposed to be supplier to the actual Pillar 2 process? Especially Pillar 2 is a global group-wide exercise. Therefore, you not only need to look at your own jurisdiction, a subsidiary jurisdiction have to talk to their parent jurisdiction and vice versa. It’s a whole group-wide exercise, where everyone needs to be very clear of who does what in order for it to work.
Emma-Jane Milgate: So there are clearly a lot of challenges and risks for tax leaders to consider. Given all of those, where do you suggest they start?
Kevin Tipton: I would recommend that groups should be focusing their attention on horizon scanning and being ready for the compliance deadlines that are imminently approaching. For the calendar year taxpayers, depending on the jurisdictions in which you operate, there are some local domestic minimum Top-up Tax filing deadlines before the end of 2025. That's obviously significantly accelerated from the deadline for the GloBE Information Return, which follows in June 2026. The kind of data taxpayers that is necessitating acceleration in a lot of these points that we've discussed, because groups need to be ready to be compliant with those local laws and local obligations, as they fall due.
Demi Bulter: And it's just linking to that, even before the QDMTT filing, there are registrations. We had a few that came up last year already, so if the group hasn't actually properly sorted out their local compliance responsibilities, then they just never going to know what they have missed. In addition to that, obviously, there is the CbCR reporting deadline coming up for a lot of jurisdictions, for the groups that are relying on the CbCR transitional safe harbour rules, that is one crucial deadline they have to capture, and they have to make sure that things go in as the reporting for the group is accurate and can be relied on for Pillar 2 purposes.
John Georgiou: I mean the registration requirements are the immediate task, but it's really important that the tax function doesn't lose sight of the technology implementation challenges, data readiness, training that wider stakeholder group, in terms of what their needs are. So if you're a tax leader in-house, you obviously need to think about how do you split those responsibilities within your tax function. Is there one person who's dedicated towards Pillar 2? Is there more than one person? And does someone need to focus more on the BAU-type activities, like some of the registration requirements, and someone perhaps more focused on the technology implementation and data readiness? Because otherwise it's very easy to see how those competing priorities can cause real challenges for tax function. So I would certainly be thinking about that as a tax leader.
Kevin Tipton: How do you integrate Pillar 2 into your existing approach to compliance management? Because a number of groups that I work with split responsibility within the tax department, either operationally between, say, advisory compliance and tax reporting. So who owns Pillar 2 in those contexts is really important, but also geographically, in particular for clients who are headquartered in non-implementing territories. Then there's potentially a split of responsibility between a group team at the headquarter level versus who's responsible for operational compliance outside of that headquartered jurisdiction. Where does the Pillar 2 responsibility lie in those contexts as well is really important to get clarity on.
John Georgiou: So I think in terms of phasing it, you first of all need to really agree on what that operating model looks like, and that split of responsibilities. Between group and subsidiaries and wider business units. See then we have the technology implementation, some of the data readiness challenges linked to that, the training, the awareness and the governance – there is quite a bit to do. And then we have the registration requirements on SOX. There is certainly a lot to do for tax leaders.
It's really worth thinking about how you split those responsibilities, and where you focus your attention, and where support is needed. And often groups will need support from external providers, particularly around guiding them through that technology implementation, some of those data readiness challenges.
Emma-Jane Milgate: So there is clearly a lot for tax leaders to be thinking about: from data all the way through to their compliance.
You've provided us with a lot of practical tips today. Thank you very much.
