Technology as a key enabler
The immediate focus of MNEs that fall within the scope of Pillar Two should be on developing a robust IT solution that can seamlessly integrate existing financial, accounting and tax reporting systems within the Pillar Two framework.
As the driving force behind efforts to standardize and automate the tax provisioning process in his organization, Song from CapitaLand Investment Limited stressed that the Pillar Two digitization project is an enterprise-wide endeavor, instead of being solely a tax initiative. He advised MNEs to form a cross-functional project management team and actively collaborate with data owners to address data gaps while keeping the senior management informed of progress.
A strategic roadmap encompassing the three key phases of discovery, design and implementation can steer MNEs toward Pillar Two readiness.
The discovery phase entails identifying data sources and existing data gaps to evaluate the availability and quality of data required for Pillar Two tax provisioning and compliance. In this phase, it is crucial to engage not only tax custodians of data but also other stakeholders from the legal, finance, IT and HR functions.
While obtaining structured data from established accounting or enterprise resource planning systems is relatively seamless, challenges arise in the consolidation of data across subsidiaries especially when there is no standardized approach or tax provisioning is performed manually. Instead of a headquarters-driven project, a bottom-up approach where each group entity plays its part so that its data fits cohesively into the overall system may sometimes be more sensible.
In the design phase, MNEs should consider how the future state will look like in terms of technology solutions, processes, people and data flows. As each organization is unique, there is no one-size-fits-all approach.
To make informed decisions on the most appropriate technology solution, MNEs should conduct a comprehensive evaluation of the data analytic requirements for both BEPS 2.0 and local tax authority mandates. Besides considering whether to leverage existing databases or design a completely new data collection system, MNEs must also assess the adequacy of their current technology capabilities to effectively support the chosen solutions. Furthermore, the company’s management will need to determine whether to undertake the design and implementation in-house or outsource to an external managed services provider.
Lasting six to nine months, the implementation phase involves deploying and testing the solutions that can extract data from multiple sources, transform the data to align with BEPS computations and generate the relevant analytics for tax compliance and effective tax rate simulations. This phase also involves preparing users for the integration of systems.