Pillar Two: A Japanese perspective
Doug McHoney and Shin Yamaguchi discuss Japan’s latest tax developments, focusing on the Pillar Two rules.
What is Pillar Two?
Under an OECD Inclusive Framework, more than 140 countries agreed to enact a two-pillar solution to address the challenges arising from the digitalization of the economy. Pillar Two introduces a global minimum Effective Tax Rate (ETR) via a system where multinational groups with consolidated revenue over €750m are subject to a minimum ETR of 15% on income arising in low-tax jurisdictions.
When does Pillar Two come into effect?
The OECD has recommended that the Pillar Two rules become effective in 2024, with the exception of the Undertaxed Profits Rule (UTPR) which is recommended to become effective in 2025. The EU Member States formally adopted the Minimum Tax Directive on December 15, 2022 and Member States shall transpose the Directive into their domestic law by December 31, 2023. Many other countries are working on their domestic rules to implement Pillar Two. Nevertheless, many multinationals already are subject to Pillar Two since the transition rules capture certain transactions occurring on or after November 30, 2021.
PwC’s Data Input Catalog is at the centre of PwC’s end-to-end process for Pillar Two. Acting as the foundation to develop an extensive data strategy, assess operational preparedness, or determine a modelling approach, PwC’s Data Input Catalog is the core to Pillar Two readiness.
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A New Global Tax System: Are you #PillarTwoReady?
How will Pillar Two impact your business?
The impact of Pillar Two on the end-to-end operations of the tax department is monumental. Companies will need to ensure they have the data needed to forecast and model in the interim as well as the data to maintain reporting and compliance requirements upon enactment. In addition to Tax, there are several key stakeholder groups within the organization, including Controllership and Financial Planning & Analysis, that will be impacted by the impending changes. One of the common challenges many companies will face is a gap in resources to lead such a broad BEPS 2.0 Readiness initiative. Amongst others, the person in this lead role must be able to address the questions and challenges across four broad categories: People, Process, Data and Technology.
Groups within scope will need to understand, evaluate, and model the impacts of Pillar Two across the organization. This includes, but is not limited to, assessing the additional data and reporting/compliance requirements, evaluating the existing technology ecosystem and capabilities, establishing processes and controls, preparing and training resources, and managing stakeholder expectations.
Check the status of the implementation of the Pillar Two rules by country in our PwC’s Pillar Two Country Tracker Online
How PwC can help your company with Pillar Two
PwC professionals can help you assess and model the likely financial and operational consequences of Pillar Two.
- Operational Readiness
- Data Strategy
- Quantitative analysis: PwC’s Pillar Two Engine
- PwC’s Data Input Catalog
Operational Readiness
Pillar Two will have a pervasive impact on an organisation’s financial operating model requiring early stakeholder engagement and substantial budget and resource allocation to address the multitude of challenges. Organisations must ask themselves if their current data model, systems, technology, and processes can support the requirements introduced by this new international tax framework.
PwC professionals can help determine how to access the financial data needed to comply, identify gaps in the data needed for reporting, and reevaluate operations given the anticipated law changes in many countries.
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Pillar Two Tax Knowledge Centre
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