Top 5 Challenges in Implementing Pillar Two Compliance

BEPS, Pillar Two, and Global Minimum Tax

Introduction

As the OECD’s Pillar Two Global Minimum Tax (GMT) framework comes into effect, multinational enterprises (MNEs) around the world including those operating in Egypt and the wider MENA region are facing a major transformation in how they calculate, report, and manage their global tax obligations.

Pillar Two introduces a 15% minimum effective tax rate (ETR) applied on a jurisdiction-by-jurisdiction basis.
The challenge is not only in understanding the rules, but in implementing them at scale across complex organizational structures.

Below are the top five challenges companies are encountering as they transition into Pillar Two compliance.

1. Data Collection and Quality The Biggest and Most Difficult Challenge

Pillar Two requires financial, tax, and operational data far beyond what companies currently gather for regular corporate tax or transfer pricing purposes.

Why this is difficult

  • Data must be collected per jurisdiction, not per legal entity.

  • Many ERP systems do not provide Pillar Two-ready data points.

  • Information needed includes:

    • Deferred taxes

    • Temporary  permanent differences

    • Covered taxes

    • GloBE income adjustments

    • Consolidation eliminations

    • Substance-based income exclusion metrics

Impact

Companies must upgrade systems, redesign data flows, and create new reporting structures often across dozens of jurisdictions.

2. Calculating Effective Tax Rates (ETR) Under Pillar Two Rules

Pillar Two ETR is not the same as accounting ETR or statutory ETR.

Challenges include:

  • Adjusting group financial statements to GloBE metrics

  • Handling deferred tax adjustments in each jurisdiction

  • Identifying excluded or covered taxes

  • Mapping local incentives and tax holidays to GMT logic

  • Reconciling inconsistencies between IFRS and GloBE principles

Errors in ETR calculation can lead to:

  • Unexpected top-up tax liabilities

  • Compliance breaches

  • Increased audit risk

3. Interpreting Complex Global Rules Across Many Jurisdictions

Pillar Two is not applied the same way everywhere. Countries may adopt:

  • Income Inclusion Rule (IIR)

  • Undertaxed Payments Rule (UTPR)

  • Qualified Domestic Minimum Top-Up Tax (QDMTT)

The challenge

Multinationals must track:

  • Which jurisdictions implement which rules

  • When they take effect

  • How each local authority interprets OECD guidance

  • Interactions between parent and subsidiary jurisdictions

This creates significant complexity for MNEs with operations in:

  • MENA countries

  • EU member states

  • Asia-Pacific jurisdictions

  • Offshore/free-zone hubs

4. Technology, Process, and System Readiness

Most companies are not technologically ready for the new data and reporting obligations.

Gaps include:

  • ERP systems not built for GloBE computations

  • Consolidation tools not aligned with Pillar Two metrics

  • Lack of automated dashboards to calculate top-up taxes

  • Insufficient integration between tax, finance, and legal systems

What this means

Companies must:

  • Rebuild internal workflows

  • Adopt new tax technology platforms

  • Automate reporting processes

  • Establish governance frameworks

5. Organizational Alignment and Governance

Pillar Two is not just a tax project it is a cross-functional transformation across:

  • Finance teams

  • Tax departments

  • Legal teams

  • IT & ERP support

  • Regional business units

Key issues

  • Different teams hold different pieces of required data

  • Lack of structured governance increases compliance risk

  • Groups need new roles and responsibilities for tax data ownership

  • Documentation must be centralized and audit-ready

Without strong governance, even technically accurate work may collapse under audit pressure.

Conclusion

Implementing Pillar Two compliance is one of the most demanding global tax challenges multinationals have ever faced.
Between data requirements, rule interpretation, technology limitations, and cross-functional alignment, companies must start early and approach implementation strategically.

Those who invest now in systems, governance, and technological readiness will not only meet compliance expectations but also gain a competitive advantage in the new global tax environment.

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