As a rapidly evolving global business, the company has tax obligations in many jurisdictions and those obligations are constantly increasing. To manage these changes, the Director of International Tax primarily relies on the Orbitax Research and Compliance Expert for all of her international tax research needs. As organizations grapple with the complexities of Pillar Two rules, many multinationals come to the conclusion that technology is not just a luxury but a necessity to navigate these intricate frameworks effectively. To secure the requisite budget and resources for implementing such technology, crafting a compelling business case is key.
“The complexity is not to be underestimated,” says Amanda Tickel, global tax policy leader for Deloitte. “Leadership needs to be modeling what the impact is, what their response plan is, how they’re going to comply, and whether they have got enough resources.”[1]
How do you make a business case for a Pillar Two technology investment to secure the necessary budget and resources?
Painting a clear picture of risks, opportunities, options and financial investment can help the C-Suite understand why the investment is required and that the resources will be spent in the best way possible.
In this article, we present insights gathered from customers who have effectively constructed business cases for their technology investments. Additionally, we provide a helpful checklist that you can utilize as you embark on developing your own business case.
General best-practices
- Include an Executive Summary succinctly outlining your recommendation and the associated investment.
- Keep the summary brief and to the point; prioritize clarity and impact over complex tax jargon.
- Make a clear recommendation rather than solely detailing various options to facilitate decision-making.
Insights in the Business Impact of Pillar Two
Pillar Two rules will likely introduce an increase in taxes due in multiple countries as well as an increase in compliance and reporting obligations.
Providing insights in the tax impact of Pillar Two on the business is key. Your initial risk assessments or tax impact modeling are a source for this piece.
With many countries adapting Pillar Two comes a corresponding increase in compliance demands. Your company will face a more labor-intensive and intricate obligations that might strain existing staffing capabilities. Compliance and reporting obligations can be quantified by multiplying the number of countries impacted and estimate of tax filings, think of QDMTT, GloBE Information Returns and STTR filings. As not all filing obligations are published by all countries, you can include a range of additional obligations as an indication.
“Some clients see the BEPS Pillar Two implementation as an opportunity to further optimize their internal tax processes. Discussions are leveled-up as BEPS Pillar Two
touched on their financial disclosure and overall tax expenditure. Also, companies are starting to realize that Safe Harbors are no reason to delay this project.” – Jeroen van Asch, Global Head of Sales & Partnerships, Orbitax
Identifying Risks
In-house resources
Insufficient in-house staff to track legal and compliance updates across different countries, while also handling the preparation and review of new compliance and reporting requirements, poses risks of burnout and staff retention issues.
Financial Statement Risk
The financial statement risks tied to Pillar Two can be significant. Deliverables for tax provision entries may be delayed due to the complexity of the calculations, while
audit costs are expected to rise as auditors may require more budget to verify the accuracy of your Global Minimum Tax calculations. And worst case scenarios, missteps in accounting for these new tax provisions could lead to a restatement of the financial statements.
Risk of Non-compliance
The penalties for not complying with these rules can be strict. Mistakes in tax returns can result in costly amendments and potential penalties. For instance, the
United Kingdom imposes penalties of up to 20% of the unpaid tax. You can find penalties for the countries you operate in, in research solutions such as OECDPillars.com or the Orbitax International Tax Research and Compliance Expert.
Identifying Opportunities
The implementation of Pillar Two rules may also present opportunities for your organization. One such opportunity is the ability to gain live tax insights, enabling real-time understanding and planning of tax obligations. By optimizing overall processes and enhancing data quality, organizations can achieve live insights and improve their tax planning strategies. For example, Pillar Two rules offer the chance to create efficiencies in existing tax processes, including Country-by-Country (CBC) Reporting, Tax Provision, statutory reporting, and other related processes. Additionally, organizations may benefit from an exemption of penalties until 2028, provided they can demonstrate reasonable measures to ensure the correct application of the GloBE rules. These opportunities not only streamline tax compliance but also pave the way for more strategic and informed decision-making.
Comparing Options and making a recommendation
It may be challenging to give a return of investment for a technology investment. Comparing options aligning each option with risk & opportunities can help to make an informed decision.
Options may include:
- A mix of Technology, In-house Staff & Advisors
- Additional Staff & Advisors
- Additional Staff & In-house model
To quantify the investment, you can estimate the number of hours spent on an activity and multiply those with a blended hourly rate. It’s important to distinguish between the in-house hours and those required from advisors, as advisors typically charge higher hourly rates. Breakdowns of activities could include research and model updates, and compliance and reporting tasks.
For the technology investment, we recommend breaking out the annual recurring cost and the one-off implementation costs. If you are comparing multiple technology vendors, you want to highlight that not all tech solutions are created equal and why you recommend a certain solution for your organization over another.
In conclusion, to make a persuasive business case, it’s essential to provide a clear picture of the risks, opportunities, options, and financial investments involved. Click here to download a practical checklist that may help you to construct your own business case.
[1] Global tax reform is coming—and CEOs need to be ready, Charles Sleck, Deloitte