Pillar Two and the tax data dilemma: why your consolidation process needs a rethink

As Pillar Two raises the bar for tax data integrity, many multinationals are discovering their consolidation processes are no longer fit for purpose. Materiality thresholds set for financial reporting often clash with the detailed, jurisdiction by jurisdiction calculations required under the GloBE rules. Here’s what tax and finance teams need to revisit now to reduce exposure.

Consolidation meets compliance: a growing gap

Pillar Two is turning consolidation data, historically a finance-led domain, into a cornerstone of tax compliance. Yet many UK headquartered groups are realising that existing reporting systems weren’t designed with tax in mind. As Ross Robertson (Partner, BDO LLP) put it in a recent Tolley webinar:

“Consolidation data has never historically driven a tax process, but it now is a key driver. Tax professionals must rethink how they feed into that consolidation.”

In other words, tax is no longer downstream of the P&L. It’s upstream and exposed.

The materiality mismatch

Tax professionals are now grappling with group-level materiality thresholds that make sense for statutory accounts but not for jurisdictional tax calculations. Where statutory reporting might allow for a £10 million materiality buffer, Pillar Two compliance could require precise data from subsidiaries with far smaller profiles.

That raises serious questions:

• Can your current systems detect and report low-value but tax-relevant adjustments?
• Are you overlooking jurisdictions deemed “immaterial” for financial reporting but material under GloBE rules?

One wrong assumption could disqualify a safe harbour and expose the group to avoidable top-up tax.

Three consolidation failures that create tax risk

1. Data loss at the source
   Local entities often lack the systems or skills to prepare tax-sensitive data. Inputs are consolidated before tax has a chance to analyse them.
2. Over-reliance on group-level adjustments
   Deferred tax assets, intercompany recharges and restructuring items are often booked centrally, masking local effects relevant to GloBE calculations.
3. Opaque audit trails
   Without a clear, documented process for how tax feeds into the consolidation, audit challenges and regulator queries become harder to defend.

“Technology can’t think. The quality of the Pillar Two output is only as good as the process feeding it.” – Ross Robertson, BDO LLP

Rethinking your process: where to begin

Conduct a materiality risk review

Evaluate the difference between financial and tax materiality thresholds across all jurisdictions. Identify outliers.

Align consolidation and tax calendars

Ensure that tax has visibility during the pre-consolidation phase, not just post-close.

Build tax-led data validation into your ERP

Use standardised tax packs and tagging logic to flag items like permanent differences, R&D credits and hybrid mismatches.

Train finance teams in GloBE relevance

Accounting teams need context, not just templates, to capture data that will pass Pillar Two scrutiny.

A wake-up call for cross-functional collaboration

Tax can no longer sit on the sidelines of consolidation. In-house teams must lead a joint rethink with finance, audit and IT to ensure that their global effective tax rate isn’t being distorted by legacy processes.

“You’ve got to train people to issue-spot. The first line of defence against unwanted Pillar Two surprises is internal awareness.” – Ross Robertson, BDO LLP

Explore how Tolley+ tools can support your Pillar Two compliance

Watch the full webinar here