# Rising to the challenge: Addressing the difficulties of pillar 2 reporting Author: Pal Sinha, Barnali Author URL: https://financedigest.com/author/pal-sinha-barnali Published: 2023-02-23 Category: BUSINESS Category URL: https://financedigest.com/category/business Meta Title: Pillar 2 BEPS Compliance for Multinationals: Key Steps & Meta Description: Discover how multinational corporations are preparing to address Pillar 2 of the BEPS directive, ensuring fair tax distribution and compliance with a global URL: https://financedigest.com/rising-to-the-challenge-addressing-the-difficulties-of-pillar-2-reportinghtml ![undefined](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/keep-track-of-financial-transactions-1736814419565-compressed.jpg) ![](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/russell-gammon-450x600-1736814419538-compressed.jpg) _By_ **_Russell Gammon,_** _CSO at Tax Systems_ Multinationals with revenue of over €750 million will be [preparing to rise to the challenge](https://www.financedigest.com/from-fragmented-systems-to-unified-cpm-unicredit-prepares-for-todays-finance-challenges.html "FROM FRAGMENTED SYSTEMS TO UNIFIED CPM – UNICREDIT PREPARES FOR TODAY’S FINANCE CHALLENGES") of meeting Pillar 2 of the Base Erosion Profit Shifting (BEPS) directive. This [set of rules was developed by the Organisation](https://www.financedigest.com/embracing-cloud-computing-how-and-why-organisations-are-set-to-invest-more-in-cloud-computing-in-2023.html "Embracing Cloud Computing: How and why organisations are set to invest more in cloud computing in 2023") for Economic Co-operation and Development (OECD) to address the issue of tax avoidance by multinational corporations. It will establish a fairer [distribution of taxing rights to significantly limit international tax avoidance and ensure that big businesses pay](https://www.financedigest.com/best-paying-jobs-in-natural-gas-distribution.html "Best paying jobs in natural gas distribution") their fair share of tax – a global economic win! These groundbreaking regulations were a cornerstone of the last G7 summit and include measures to tackle problems, such as transfer pricing, hybrid mismatch arrangements and country-by-country reporting, with relevant organisations liable to pay a [global minimum tax](https://www.financedigest.com/german-industry-calls-for-delay-to-global-minimum-tax-bdi.html "German industry calls for delay to global minimum tax – BDI") of 15%, irrespective of where they operate. The EU and the UK will have subtly different implementations of the rules. This currently looks like it will affect over 500 businesses in the UK, who will have to [report information](https://www.financedigest.com/kings-secure-technologies-adopts-agile-flexible-cloud-reporting-access-granular-real-time-financial-information.html "Kings Secure Technologies Adopts Agile and Flexible Cloud Reporting for Access to ‘Granular Real-time Financial Information’") relating to Pillar 2 to HMRC by 2026 (18 months after December 2024 year-ends). However, it’s worth noting that some [businesses have already started disclosing this  in their most recent sets](https://www.financedigest.com/acca-sets-out-magnificent-seven-attributes-vital-to-success-in-modern-business.html "ACCA Sets Out ‘Magnificent Seven’ Attributes Vital to Success in Modern Business") of glossies. For those [organisations meeting](https://www.financedigest.com/lack-of-collaboration-and-skills-shortage-is-limiting-organisations-ability-to-meet-ifrs-9-requirements.html "Lack of collaboration and skills shortage is limiting organisations’ ability to meet IFRS 9 requirements") the criteria, this brings a range of major considerations and challenges. [Understanding how to comply with these large numbers of data](https://www.financedigest.com/how-data-visualisation-is-helping-the-insurance-sector-understand-environmental-risks.html "How data visualisation is helping the insurance sector understand environmental risks") points required under Pillar 2 – some sources state this to be as many as 150+ items – is the important first step. **Change is gonna come** In many cases, the most logical and effective strategy to adopt is to focus on [building global data integration and collaboration processes](https://www.financedigest.com/li-cycle-to-build-french-battery-processing-facility.html "Li-Cycle to build French battery processing facility"), ideally via a single technology platform. This is particularly important for [international organisations](https://www.financedigest.com/most-sales-and-marketing-teams-struggle-to-activate-data-in-their-organisation-according-to-new-international-study.html "Most Sales and Marketing teams struggle to activate data in their organisation, according to new international study"), where the requirements and complexity imposed by BEPS increase further. But, why do organisations need to change their approach and why aren’t [existing processes](https://www.financedigest.com/solvency-ii-pushing-existing-systems-and-processes-harder-is-not-enough-for-compliance.html "Solvency II: pushing existing systems and processes harder is not enough for compliance") sufficient? Let’s take [corporate tax](https://www.financedigest.com/what-will-mtd-for-corporation-tax-look-like.html "What will MTD for Corporation Tax look like?") as an example – today this is often still a manual task, carried out annually with the use of spreadsheet-intensive routines. Complexity is inherent in the system, with detailed tax calculations and sector-specific rules adding to the [challenge facing finance](https://www.financedigest.com/how-finance-leaders-can-turn-the-inflation-challenge-into-opportunity.html "How finance leaders can turn the inflation challenge into opportunity") teams and their advisors. Utilising a similar approach for Pillar 2 means another compliance burden, taking a significant amount of time, on a tax team that is likely under-resourced as it is. To comply with Pillar 2, all calculations [must be provided to corporate](https://www.financedigest.com/why-corporates-must-beware-of-using-cryptocurrency.html "Why corporates must beware of using cryptocurrency") headquarters. One of the major [challenges this presents comes from gathering and collating data](https://www.financedigest.com/the-challenge-of-keeping-data-secure-why-in-house-security-isnt-enough.html "The challenge of keeping data secure: why in-house security isn’t enough") from multiple sources, particularly for those organisations working across borders. Indeed, some [finance functions might not currently be collecting or reporting](https://www.financedigest.com/bank-finance-for-cleaner-energy-grows-but-still-lags-fossil-fuels-report.html "Bank finance for cleaner energy grows, but still lags fossil fuels – report") on this data at all. In addition, despite the fact that deferred tax is likely to be among the main areas required for Pillar 2 reporting, many organisations will find that this information cannot be found within their [ERP systems](https://www.financedigest.com/is-your-erp-system-industry-4-0-compatible.html "Is your ERP system Industry 4.0 compatible?") or other dedicated software tools; the information typically lives in spreadsheets today. And for those reliant on Excel, the [process is likely to be long and complex](https://www.financedigest.com/board-report-highlights-complex-decision-making-process-across-banking-and-finance-sector.html "Board Report Highlights Complex Decision-Making Process Across Banking and Finance sector"). Either way, Pillar 2 may [well end](https://www.financedigest.com/tennis-panic-attack-ends-tsurenkos-indian-wells-as-raducanu-marches-on.html "Tennis-Panic attack ends Tsurenko’s Indian wells, as Raducanu marches on") up meaning that organisations need to create a single, trusted and centralised source of all relevant data, not least because it will ensure finance teams can discover and report on everything required for submission. **Technology hurdles** The [big question here is how can data](https://www.financedigest.com/big-data-suggests-leicesters-football-success-could-usher-in-economic-boom.html "Big data suggests Leicester’s football success could usher in economic boom") be centralized in an efficient and cost-effective way. Getting back to the role of ERP systems, while many companies will see these tools as the obvious choice on which to base a centralization strategy, this is made much more difficult by the prevalence of complex [legacy systems](https://www.financedigest.com/retailers-weighed-down-by-their-own-legacy-systems-survey-reveals.html "Retailers Weighed Down by their own Legacy Systems, survey reveals") that make the collation process very challenging. Granted, more modern solutions such as SAP4HANA and Oracle Fusion are increasingly more widely used, but even these may not meet the [needs of organizations focused on Pillar 2 compliance without additional](https://www.financedigest.com/need-additional-funding-but-not-sure-how-to-go-about-it.html "Need additional funding but not sure how to go about it?") – and potentially expensive – customization. The challenges don’t end there. Many enterprises currently consolidate [returns only at a group level](https://www.financedigest.com/delta-sees-return-to-profit-as-travel-demand-hits-historic-levels.html "Delta sees return to profit as travel demand hits ‘historic’ levels"), whereas Pillar 2 requires this work to be carried out, in addition, at a country level. Making this change isn’t just a matter of running some additional calculations, there is [potentially a range of implications to address](https://www.financedigest.com/connectivity-concerns-must-be-addressed-to-unlock-iots-potential-for-energy-sector.html "Connectivity concerns must be addressed to unlock IoT’s potential for energy sector") when updating technology. So, ideally, [organisations should assess their data](https://www.financedigest.com/can-financial-services-organisations-harness-data-and-bi-to-catch-up-in-the-digitalisation-race.html "Can financial services organisations harness data and BI to catch up in the digitalisation race?  ") capture and calculation capabilities, and apply gap analysis to understand where any missing data resides and how to gather it. **The role of automation** But, all is not lost! [Among the rapidly emerging technologies](https://www.financedigest.com/how-technology-is-helping-to-reduce-loneliness-among-the-elderly.html "How technology is helping to reduce loneliness among the elderly") designed to address the serious limitations of manual processes and legacy technologies is, of course, automation. Implementing these advanced capabilities as [part of an integrated](https://www.financedigest.com/what-is-id-and-verification-and-why-is-it-such-an-integral-part-of-digital-life.html "What Is ID and Verification and Why is it Such an Integral Part of Digital Life?"), tax-specific collaboration platform enables geographically-diverse organisations to work together on a central document, managed via a shared portal. This [delivers enormous efficiency benefits compared to traditional](https://www.financedigest.com/how-can-traditional-banks-deliver-game-changing-innovation-in-the-digital-age.html "How can traditional banks deliver game-changing innovation in the digital age?") approaches where spreadsheets must be manually merged at HQ. As with any important technology project, working with a partner who can integrate existing systems to work as part of a unified and collaborative [process is key](https://www.financedigest.com/1-easy-tip-to-make-a-key-e-commerce-process-more-efficient.html "1 easy tip to make a key e-commerce process more efficient"). And while there is still time to address the challenges that BEPS undoubtedly brings, building a tech-led collaborative strategy puts organisations in an ideal position to build [modernisation into their wider approach to tax processes](https://www.financedigest.com/5-reasons-why-modernising-is-the-most-important-ongoing-process-for-any-business.html "5 Reasons Why Modernising Is The Most Important Ongoing Process For Any Business"), reporting and compliance. --- This blog is powered by Superblog. Visit https://superblog.ai to know more. ---