Pillar Two Administrative Guidance: Compounding compliance challenges

On January 15, 2025, the OECD released additional Pillar Two Administrative Guidance on the Global Anti-Base Erosion Model Rules (‘GloBE Rules’). The package includes further guidance on Article 9.1, a list of countries that have (temporary) ’qualified’ Pillar Two rules, an updated GloBE Information Return (GIR) and related Commentary, and an updated XML Schema, further guidance on Article 8.1.4 and 8.1.5, and a Multilateral Competent Authority Agreement (MCAA).

The MCAA could play a pivotal role in facilitating central filing and exchange of the GIR, representing a significant step toward streamlining the administration of the global minimum tax and reducing duplicative efforts. The MCAA may allow for streamlined filing of the GIR, however, significant practical challenges still exist. For example, unless all jurisdictions in which the MNE Group operates adopt a Qualified Competent Authority Agreement (QCAA), some local filings may nevertheless be required. Even if all jurisdictions in which a MNE Group operates were to exchange the GIR automatically, the updated GIR and guidance has introduced additional complexities and compliance burdens of which in-scope MNE Groups should be aware.

Subsequent to the Administrative Guidance, President Trump signed Executive Orders targeting the “global tax deal,” withdrawing the US from the deal and calling for retaliatory measures against countries implementing aspects of Pillar Two that were viewed as having extraterritorial impact, such as the UTPR. While the future trajectory of Pillar Two remains uncertain, more than 50 countries have enacted Pillar Two legislation, and in-scope MNEs remain subject to those laws, including adherence with the updated GIR guidance, to the extent enacted or incorporated in relevant legislation. See this Tax Policy Alert for more information on President Trump’s Executive Orders and Pillar Two impact.

Acknowledging Differences in Data Points

The Administrative Guidance on Articles 8.1.4 and 8.1.5 describes how to complete certain sections of the GIR and includes an explicit requirement for MNEs to complete the GIR based on the GloBE Model Rules and definitions, with some significant exceptions, rather than the relevant country’s legislation. Prior to this guidance, many may have expected that the GIR should be filed in accordance with the legislation relevant to the taxing rights being applied (e.g., the local IIR legislation when an Intermediate Parent Entity is applying the IIR). The guidance provides that the rationale for this requirement to file based upon the GloBE Rules is that “the data points in the GIR are completed based on a single basis” as opposed to potentially differing underlying legislation. An exception to this general rule may apply when only one jurisdiction has Pillar Two taxing rights with respect to a jurisdiction, for example if a safe harbor eligible QDMTT applies or if only one jurisdiction’s IIR applies with respect to all the Constituent Entities in a particular jurisdiction. When these types of exceptions apply, the detailed computations for a jurisdiction or subgroup must be completed based on applicable domestic legislation.

It's clear that differences will exist between the GloBE Rules and the domestic legislation of implementing jurisdictions. Discrepancies may arise due to variations in the computation of effective tax rates (ETR) and Top-up Tax liability for the same data point. If there are differences in the local legislation and the GloBE Rules, the guidance may require MNE groups to map, identify, and report the impact of those differences, including variations in data points and calculations, in the GIR. Further, if a jurisdiction’s domestic legislation requires additional data points or information, there may be an additional domestic filing requirement.

Additionally, the OECD acknowledges that some jurisdictions will be constrained by their domestic law and unable to accept a GIR completed based upon GloBE Rules in lieu of applicable domestic legislation. In such cases, the onus will be on the MNE Group to track which jurisdictions will not accept a GIR based upon the GloBE Rules for this reason and then possibly prepare a GIR for the specific jurisdiction based upon locally enacted legislation. In the context of jurisdictions applying the UTPR, this task could be particularly onerous.

Even if the MNE Group is able to file only one GIR and a GIR that is fully based on the GloBE Rules, which seems unlikely, significant complexities in completing the GIR will still exist.

The Complexity of Dual Reporting Requirements

The requirement to navigate differences between GloBE Rules and domestic frameworks, coupled with additional domestic filing obligations, places a heavy compliance burden on MNEs. It necessitates completing the GIR in alignment with the GloBE Rules while simultaneously managing separate data, calculations, reporting, and processes in parallel to comply with local requirements.

There are challenges and logistical hurdles in terms of how this will work in practice. For example, many countries may not implement legislation retroactively, which creates a lag between the issuance of any additional Administrative Guidance and the implementation of that guidance into local legislation. For example, Administrative Guidance issued in 2025 might not be domestically enacted until 2026. These timing delays may lead to misaligned legislation, contributing to differences in Top-up Tax obligations between the GIR and domestic legislation.

The differences between the GloBE Rules and domestic legislation may lead to redundant reporting requirements and instances where taxpayers are required to prepare both GloBE Rule and domestic legislation calculations for the same jurisdiction.

Performing multiple detailed calculations (e.g., full GloBE under Model Rules, full GloBE under various local legislation, and full QDMTT) creates additional compliance costs and resource constraints even in the most ordinary of fact patterns.

Increased Costs and Administrative Burdens

The role of the MCAA in enabling centralized filing and facilitating information exchange is critical to reducing compliance burdens for MNEs. The centralized GIR reporting model, while aiming to reduce duplicative reporting, also creates new challenges. The expectation that MNEs report differences in key indicators between the GloBE Rules and local legislation may increase compliance costs in several ways:

1. Data Mapping and Reconciliation: MNEs must carefully map and reconcile data points across jurisdictions, identifying discrepancies and ensuring alignment with both GloBE and local rules. This requires a strong data management framework to manage the separate calculations and processes, supported by advanced technology to handle the data effectively.
2. Enhanced Monitoring and Coordination: Managing compliance with diverse reporting requirements across multiple jurisdictions necessitates enhanced internal monitoring and coordination mechanisms, placing additional strain on tax departments.
3. Potential for Additional Filings: Jurisdictions with constitutional or administrative constraints may require MNEs to file additional domestic returns or information disclosures, adding to the workload.

The need to potentially track and report differences between local legislation and the GloBE Rules not only creates additional compliance burdens but also may lead to additional scrutiny from tax authorities as GIRs are filed and reviewed. Therefore, it will be critical to have accurate recordkeeping and documentation with respect to the calculations that support the GIR, and all data reported under local legislation and the GloBE Rules.

How PwC’s Pillar Two Engine Can Help

PwC’s Pillar Two Engine, powered by Beacon¹, is specifically designed and configured to meet these compliance burdens. It is equipped to support multiple calculations, including the GloBE Rules and domestic legislation, enabling MNEs to navigate the varied requirements of different jurisdictions.

An important feature of PwC’s Pillar Two Engine is its ability to generate a GIR XML schema, enabling an efficient filing process by eliminating much of the complexity associated with preparing and submitting the GIR. As the Pillar Two Engine incorporates both GLoBE Rules and country-specific localization, it is configured to identify and report on differences between GloBE Rules and domestic legislation for GIR and QDMTT filings, facilitating filing across multiple jurisdictions and taxing authorities. The Pillar Two Engine produces all data points required in the GIR and local QDMTT filings, including those not explicitly specified in the GloBE Rules.

The Pillar Two Engine is regularly updated to reflect evolving legislation, helping MNEs stay ahead of compliance changes. PwC continues to enhance the Pillar Two Engine to encompass all reporting and filing obligations, providing a comprehensive solution for Pillar Two compliance.

_{¹The use of Beacon might be subject to independence restrictions for certain clients.}