Today’s finance chiefs must attempt to untangle a complex web of global tax rules in a world where business is only getting more interconnected and international. Directives such as the Organisation for Economic Co-operation and Development’s Pillar 2 are leaving finance chiefs worried over tax rate instability while they continue to juggle the impacts of inflation and other macroeconomic pressures, for example.

In 2021, more than 130 countries agreed to implement Pillar 2, which is aimed at providing an incentive for countries to set a global minimum effective tax rate of 15% for multinational enterprises with a global turnover of €750 million or above.

For finance chiefs even in countries where the directive has not been enacted, Pillar 2 looms as a large area of focus because it’s going to put even more pressure on “making sure that your data quality is correct, because in this instance, if your data quality isn't correct, you could end up possibly being double taxed,” said Josh Schauer, vice president of finance for insightsoftware.

Schauer joined the Raleigh, North Carolina-based financial software provider — which offers solutions to help manage financial data, FP&A processes, accounting and other operations — in 2020. Before joining insightsoftware, he served as director, financial planning and consolidation for Longview Solutions, according to his LinkedIn profile.

Shining a spotlight on data quality

Debate over Pillar 2 and how it will impact companies has been raging for some time; the U.S. has not yet enacted the rule, with some matters important to the country left “unresolved,” Treasury Secretary Janet Yellen said in October, according to a report by Politico. The proposed 15% minimum tax rate has also faced pushback, with detractors arguing it will hurt the U.S. tax base by contributing to lost revenue and limiting the government’s ability to set its own tax regulations, according to a report by the Tax Foundation.

Still, U.S. finance chiefs should be keeping a close eye on how Pillar 2 might affect them; in countries where the directive has been adopted, U.S. MNEs operating within those areas will be expected to comply, per a summary by PricewaterhouseCoopers.  

At the end of the day, Pillar 2 is another “pebble on the pile” of things weighing on today’s CFOs, who have been juggling interest rates, inflation, the impacts of the COVID-19 pandemic and labor shifts such as remote work for the past several years, Schauer said.

Finance chiefs therefore need to a take a “proactive as opposed to reactive” approach, ensuring that their data is aligned and that they don’t wait until it’s too late — which would contribute to them paying more tax, he said.

“It's yet another thing to add to the complexity of what's been asked of the office of the CFO here recently, especially in the last few years, that could also have real cash dollar impacts,” he said.

Taking a close look at one’s data quality, including how information is aggregated, is essential for CFOs to ensure they are well-prepared for such requirements; firms may need to create financial reporting processes that may not yet exist at the level they need in order to pull data concerning multiple currencies out of separate systems, Schauer said.

“If you've got an entity that operates out of 100 countries, and you need to know definitively, exactly what your profit looks like in a certain country…the requirement for being spot on and making sure that you're not getting taxed more than you should be is really what we mean by data here,” he said.

Matching talent with tech

While finance chiefs have always relied on the availability of data to ensure smooth and compliant financial reporting processes, something like Pillar 2 is “going to require a…finer tooth comb to be applied to this, to ensure that that everything is satisfactory, and set,” Schauer said.

Finance chiefs that fail to apply the necessary level of scrutiny could see a significant financial cost for their businesses, meaning they need to examine the people and the technologies they have in place at their companies for their financial reporting.

“You want a tool that can automate it, you want to get out in front of understanding whether or not your ERP tool that you're using is built to handle the level of complexity that is now required,” he said.

When it comes to headcount, larger companies could well wind up establishing a whole team to respond to Pillar 2; “you start thinking of 15% of some of the amounts of profit of these large entities, and a whole team pays for itself very, very quickly,” Schauer said.

Firms on the smaller end subject to the rule may also hire additional talent, but companies still need to ensure they have the proper systems and tools in place before adding new hires, he said.