Pillar Two Gameplan

The kickoff:

The new OECD Pillar Two rules and football may seem like two different worlds, but they share surprising similarities. Both involve complex strategies, coordination among players, and the goal of gaining and protecting valuable turf. But while most of us are cheering for our favorite teams this time of year, US multinationals are preparing for the impact of Pillar Two. ​

Pillar Two is a new tax regime aimed at making sure certain multinationals pay their fair share of taxes – 15% to be exact – in every jurisdiction in which they do business. If that minimum tax rate has not been met in a particular jurisdiction, companies will need to make up the shortfall by paying a ‘Top-Up Tax’. ​

But figuring out whether the Top-up Tax is owed is not easy. ​

The Pillar Two rules require complicated and data-intensive calculations of a new effective tax rate measure (the ‘Globe ETR’) for every single jurisdiction in which the company has operations. These calculations are based on a unique hybrid of tax and financial accounting concepts, which will effectively require companies to create a third set of books. ​

While this may seem like a tax-only problem at first glance, Pillar Two is expected to disrupt the finance and controllership functions as well. ​

Time is ticking on the game clock too – we expect many US multinationals to be impacted in the first quarter of 2024, which is when these rules begin to go into effect. ​ 

Calendar-year public companies will be required to report on the forecasted effects of Pillar Two in their 2024 Q1 income tax provision and consider disclosure obligations in their 2023 10-K.​

Given the scope and complexity of the new rules, implementing Pillar Two can seem daunting – think of it as implementing the new revenue and leases standards at the same time. That’s why we’ve drawn up this gameplan to help US companies meet their immediate financial reporting obligations. ​

Written with US professionals (and US GAAP) in mind, our gameplan provides an overview of the new rules, implementation steps companies should be taking to get ready for Q1, and how the accounting and finance functions may be impacted – including where the external auditor may be focused.​