Global minimum tax rules, often called Pillar Two, change how large groups plan and report tax. The goal is a floor on the effective tax rate across countries. Many groups now need new data, new controls, and a new way to explain results. This guide gives a simple, step by step path to get ready.
What Pillar Two means and why it matters
Pillar Two adds a global minimum effective tax rate. If a jurisdiction’s rate is below the floor, a top-up tax may apply. That top-up can be charged in the parent’s country or in other countries, based on local rules. This affects cash taxes, forecasts, and the notes in your financial statements.
You cannot treat Pillar Two as a small update. It links finance, tax, and legal work across many entities. A clear plan reduces rework and keeps audits smooth.
Who is in scope and how to confirm
Most rules aim at large multinational groups over a set revenue threshold. To confirm scope, look at your most recent consolidated financials:
- Check if the group meets the threshold.
- List each jurisdiction and legal entity.
- Mark partial ownership, joint ventures, and permanent establishments.
- Call out listed entities and any local filing duty triggered by them.
Keep a one page scope sheet with the threshold check, the list of in scope countries, and the first year you expect to apply the rules. Update it when ownership or revenue changes.
Key concepts you must align on
GloBE income and covered taxes
GloBE income starts from financial statement profit with specific adjustments. Covered taxes are taxes on income, adjusted for the rules. Getting these right needs a clear link from ledger accounts to GloBE lines.
Effective tax rate and top-up tax
The effective tax rate (ETR) is covered taxes divided by GloBE income for each jurisdiction. If ETR is below the minimum, you compute a top-up percentage and apply it to the excess profit.
IIR, UTPR, and QDMTT
The Income Inclusion Rule (IIR) lets a parent jurisdiction collect top-up tax from low taxed subsidiaries. The Undertaxed Profits Rule (UTPR) is a backstop. A Qualified Domestic Minimum Top-up Tax (QDMTT) lets a country collect its own top-up first. These interact, so the group must model different paths.
Step 1: Map the group and confirm scope
Start by mapping your legal structure and flow of ownership. Include all subsidiaries, branches, and permanent establishments. Note ownership percent, consolidation method, and main activity.
Build a simple table for each jurisdiction:
- Entities in the country
- Ownership percent and consolidation status
- Local profit source and main tax types
- Any QDMTT or local filing expected
This map anchors every later step. It avoids missed entities and shortens review time.
Step 2: Build a clean data model
Good outputs need clean inputs. Create a data model with the lines you need for GloBE income and covered taxes. For each line, record:
- Source system and table
- Field name and definition
- Owner and monthly close timing
- Transformation rules
Standardize key fields like entity code, jurisdiction code, currency, and period. Set rules for date, number, and sign. Add checks for empty fields and out of range values. Keep a small error log and fix root causes during the first cycle.
Step 3: Draft the ETR and top-up view
With the model in place, run a first pass on ETR by jurisdiction using recent actuals. Do not wait for final data. A draft view helps you see where risk sits.
For each jurisdiction, build a short page that shows:
- GloBE income
- Covered taxes
- ETR and distance to the minimum
- Drivers that push ETR down or up
- Notes on loss carryforwards, tax credits, and timing
This view guides leaders to hot spots and helps set priorities for data cleanup or elections.
Step 4: Decide on safe harbours and elections
Some rules allow safe harbours or elections that reduce work or change timing. To decide, compare the effort to the benefit.
- If a safe harbour lowers reporting work in a country with small activity, it can free time for higher risk areas.
- If an election changes the treatment of taxes or income, model it across two or three years, not just one.
Record each choice with a short note: what you chose, why, and when you revisit the choice. Keep these notes with your workpapers.
Step 5: Set controls, evidence, and ownership
Pillar Two needs a strong trail from numbers to source. Set simple controls now:
- Role based access for data pulls and models
- Change logs for mappings, elections, and methods
- Peer review for each jurisdiction page
- Retention rules for inputs, calc files, and outputs
Create a “prepared by client” list for each jurisdiction. Name the source file, the owner, and the folder path. During audit, this saves days.
Step 6: Plan systems and reporting
Decide how you will run the process at scale. Many groups start with a spreadsheet and then move to a system. When you choose tools, check:
- Can it pull from your ERP and consolidation system
- Can it store mapping rules with version history
- Can you audit changes and export logs
- Can it produce jurisdiction pages and a group report in a repeatable way
Plan where the note will sit in the financial statements and who signs it. Work with controllership to align timelines with the close. Set a clear handoff from tax to reporting.
Step 7: Create a 90 day action plan
Keep the first plan short. Focus on the steps that unlock the rest.
Days 1 to 30
- Finish the scope sheet and entity map
- Build the data model and field rules
- Produce the first draft ETR by jurisdiction
Days 31 to 60
- Clean top data issues and rerun ETR
- Decide on safe harbours and key elections
- Write control notes and set access
Days 61 to 90
- Lock a system or spreadsheet template
- Create the jurisdiction pages and group summary
- Align the reporting calendar with close and audit
This plan gets you to a stable base. You can then refine methods and add more automation.
Risks to watch and quick fixes
Missed entities or PEs. Use the legal map and the consolidation schedule to find all units. Cross check with the tax returns list.
Weak data lineage. If you cannot trace a number back, you will face delays. Add source tags and store extracts with period stamps.
Late local rules. Some countries are still refining details. Track changes, but keep building your base model and controls. Most updates slot into the same framework.
One off models. If every country uses a different sheet, quality drops. Standardize the template and the review checklist.
Short staffing. Agree on peak weeks with finance and set a simple standup during close. Short daily checks avoid last minute surprises.
Next steps for tax leaders
Pick a small team with clear roles in tax, finance, and IT. Approve the 90 day plan. Start the scope sheet and the data model this week. Produce a first draft ETR view next month. Make safe harbour and election choices with a two year lens. Set controls and a simple folder plan early.
With a steady path, Pillar Two becomes a repeatable process. Clean data, clear notes, and standard templates will lower effort each quarter and reduce review time.
