In October 2021, a significant stride was taken toward updating the international tax landscape as over 135 jurisdictions united to address base erosion and profit shifting. At the forefront of this transformation lies the Global Anti-Base Erosion (GloBE) Pillar Two Rules, designed to ensure equitable taxation for large multinational enterprises across various jurisdictions. A cornerstone of this plan, the Pillar Two GloBE Rules necessitate a minimum tax payment on income in each operating jurisdiction if the effective tax rate falls below the predetermined minimum.
To embrace these pivotal changes, businesses must recalibrate their internal processes and systems to navigate the evolving tax landscape. To help our customers on this journey SAP offers SAP Profitability and Performance Management (SAP PaPM) solution as a technological base and partners with business consultants who bring their functional insights and expertise experience to the table. This combination of technology and functional knowledge aims to equip businesses to compute minimum tax liabilities, meet reporting mandates, and navigate the complex web of computations and data requirements.
In this blog post I would like to share one great example of our collaboration with EY and BASF (watch the webcast) on the BEPS Pillar 2 journey.
🔍 Data Challenges and Solutions: Insights from BASF and EY 🔍
One of the foremost challenges, as highlighted by BASF - a multinational listed chemical manufacturing company – is data collection and validation. The journey involves sourcing financial and non-financial data, structured and unstructured, from diverse outlets. With over 250 data points required to address Pillar 2 compliance and reporting obligations, quantity alone is a challenge but in parallel, also ensuring accuracy and quality of data is key. Change management becomes pivotal as existing sources of data may require modifications, integration capabilities of chosen technology become very important.
Figure 1. Illustration of data points required to address Pillar 2 compliance and reporting obligations
💡 Embracing Transformation: Human at Center 💡
BASF's experience underscore the crucial role technology plays in this transformation, but it is important that technology helps the user to navigate through the process. By focusing on user experience, profiles and needs, technology is adopted faster with business value realized faster. SAP PaPM offers not only high automation potential, seamless integration, and great performance, but places human experience at the heart of the solution with a user-centric design, intuitive and customizable features.
🚀 A Glimpse into the Future: Platform for multiple use cases and Tax function Digitalization 🚀
BASF envisions a Pillar 2 technology solution as be a "Data Lake" for tax use cases, for example, data that fuels Country by Country reporting and generates imports for final declarations. This digital transformation extends beyond tax compliance, propelling businesses toward a more efficient and agile future. Experienced EY professionals add that SAP PAPM offers this scalability covering not only corporate income tax use cases, but also operational transfer pricing, profitability and cost management and other financial and managerial use cases.
Figure 2. High level SAP architecture example of Pillar 2 solution
🔑 Embrace Transformation, Unleash Potential 🔑
The evolution of international tax systems beckons us to adapt, innovate, and transform. With BEPS Pillar 2 automation projects as guiding lights, companies are not only meeting regulatory obligations but also propelling Tax departments into the digital age.
Let's continue this journey together, fostering insightful discussions on the intersection of tax, technology, and transformation. Leave a comment below so we can have exchanges of experiences.