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Pillar 2 impacts for CAOs

Strategic CAOs can help prepare their organization for Pillar 2

How KPMG can help: Accounting Advisory Services

During this time of the year, many Chief Accounting Officers (“CAOs”) are heavily focused on ensuring the organization delivers high-quality financial information to investors through earnings releases and related investor material and the annual audited financial statements, including those filing
a Form 10-K. 

However, CAOs of multi-national companies may already need to be looking forward as the Organization for Economic Cooperation and Development (“OECD”) has recently added an additional requirement for financial reporting to the mix of an already complex set of demands on the CAO’s organization (along with the Tax department). In December of 2022, the European Union reached a unanimous agreement to implement the EU Minimum Tax Directive (Pillar 2) which is part of the OECD’s Base Erosion and Profit Shifting project. Many other jurisdictions are also expected to implement the Pillar 2 rules this year.

The Pillar 2 rules seek to implement what in effect is a minimum tax rate of 15% (applied on a country-by-country basis) for Multi-National Enterprises (an enterprise with one legal entity outside of its home jurisdiction) with total average revenue of greater than 750 million euros (approximately $810 USD at prevailing exchange rates) in 2 out of the last 4 years1. At least some aspects of these rules will take effect as soon as fiscal 2024. Thus, a large group of entities in the United States will be subject to some level of Pillar 2 compliance activities.

Why is this relevant to CAOs of multi-national enterprises, both public and private? Because the Pillar 2 Rules generally rely on the parent entity’s consolidated financial statements with adjustments, and in particular the information by the legal entity that is used in preparing those consolidated financial statements, in order to determine the denominator in the calculation of the Effective Tax Rate as compared to the Minimum Tax Rate of 15%.  The numerator of the Effective Tax Rate calculation i.e., tax expense, also heavily relies on financial accounting concepts, including current and deferred tax expense.

The complexity arises from the numerous adjustments that are to be made to the GAAP financial statement amounts, along with other voluntary elections that can be made to further smooth the results period-to-period to reduce volatility from matters such as accounting for certain assets and liabilities at Fair Value, and not recognizing the impact of pushing the impact of purchase accounting down to an acquired legal entity’s general ledger. 

Strategic CAOs should take the opportunity once they have completed their year-end responsibilities to:

  • Gain an understanding of the potential impact to their organization as to the likely cash tax impact and how to account for any incremental Top-Up Tax. For example, which legal entities may be subject to the global minimum tax, what that impact could be, and how to measure and account for the associated recognition in the accounting books and records.
  • Gain an understanding of the data requirements and associated data structure and systems. For example, the Pillar 2 rules, in particular the adjustments to arrive at the Global Anti-Base Erosion (“GloBE”) net income or loss, utilize data that arises from both the ERP transactional data tables as well as information in other systems such as payroll systems, fixed asset sub-ledgers and, very likely, countless spreadsheets maintained in the Tax Department. For those entities that have not yet moved to a data lake or warehouse strategy, Pillar 2 may provide the impetus to re-examine the need for such a strategy.
  • Gain an understanding of the technology needs and how your organization’s current infrastructure may be utilized to maximize the efficiency of complying with Pillar 2. For example, for some organizations, the use of their enterprise performance management systems may be useful in computing GloBE net income or loss.
  • Assess the resource requirements and timing of filing the associated information returns with the Tax department. Pillar 2 will require joint efforts between the two for most organizations depending on the level of knowledge of the consolidation process within Tax and the associated data that is used.
  • Assess the level of materiality and related ICOFR that exists to ensure that the data used for purposes of Pillar 2 is complete and accurate and mitigates the risk of a material error in the data to an acceptable level. Including the Internal Audit department early in the process may prove beneficial to ensuring proper enterprise-wide risk management controls are embedded in the processes and related systems used to meet these requirements.

Tax planning and compliance has always been an area where Strategic CAOs have been instrumental in helping organizations achieve their financial objectives. With the onset of Pillar 2, CAOs can further help their organizations successfully manage the impact of this initiative through cross-collaboration with Tax and trusted advisors, leveraging the CAOs intimate knowledge of financial reporting requirements, supporting systems and tools, and related data insights.

Please visit The strategic CAO webpage and subscribe to CAO Insights to get the latest in finance and accounting insights, understand the challenges that lie ahead and recent trends impacting the role of the CAO…delivered directly to your inbox or mobile device.

Additionally, visit BEPS Pillar One and Pillar Two webpage for insights from KPMG leaders on the potential impact of proposed tax reform in this ever-changing global economy.


  1. KPMG report: Pillar Two implementation package - KPMG United States

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