From parallel obligations to integrated opportunities: aligning Pillar Two, Transfer Pricing and other reporting

Internationally operating businesses have seen many new reporting & documentation obligations arise in recent years. Pillar Two, public Country-by-Country Reporting and transfer pricing (TP) documentation may serve different objectives, but they all draw on the same common themes: where profits are generated, where taxes are paid, and how value is created within an international group. The Pillar Two and (public) Country-by-Country Reporting rules are typically only relevant for groups with consolidated revenues of at least EUR 750 million.

In practice, these obligations are often seen by international groups as parallel rather than complementary. How can you avoid inconsistency, what overlap is there, and what opportunities for synergy and optimisation do we see in the multitude of international reporting obligations? Our experts explain why a strategic approach is essential.

Different views, but the same reality

A brief look at the scope and intent of three specific sets of rules shows both the overlap and the differences between the different reporting obligations.

• Transfer pricing looks at group transactions and whether they are in line with the arm’s length principle. It is aimed at determining the correct intercompany pricing – and substantiating this pricing to tax authorities via the preparation of TP documentation, a Master File and Local Files. In general terms, transfer pricing focusses on functional analyses, value drivers and comparability. “Regular” country-by-country reporting (CbCR), one of the key elements of transfer pricing documentation obligations for larger groups, is meant disclose information to tax authorities and offer them broader insight into the profit allocation per country within a multinational enterprise.

• Public country-by-country reporting (PCbCR) on the other hand, goes beyond disclosure of information to tax authorities and requires disclosure to the public. These European rules for large multinationals are intended as a transparency instrument, to inform stakeholders and other interested parties on where multinationals pay tax.

• Pillar Two requires a technically complex and heavily data-driven calculation, with potentially significant tax consequences. In the Netherlands, Pillar Two was implemented through the Minimum Taxation Act 2024, ensuring that an appropriate minimum level of taxation is achieved in each jurisdiction where a group is located. Based on the Pillar Two returns, top-up taxes may be due where underpayment is determined. Many countries have adopted Pillar Two legislation, although the specifics, carve-outs and safe-havens might differ slightly.

To the untrained eye, these three regimes may seem confusing or even contradictory. But it is important to realise that these regimes are different lenses on the same economic reality. Transfer pricing is still the backbone, explaining how the group operates, where decision-making authority sits, and how risks are controlled. If your TP is robust and consistently reflected in systems and data flows, many apparent inconsistencies dissolve, or at least become explainable. That should be the starting point for both Pillar Two data processing and PCbCR disclosure.

Aligning for efficiency and insight

In practical terms, these obligations call for greater alignment between different operational and strategic fields. Pillar Two is forcing many groups to inventory data sources in more detail. Rather than treating this as a one-off compliance exercise, you can turn this focus into insight: use it to rationalise data governance more broadly. For example, mapping how general ledger accounts feed into Pillar Two calculations also provides a clearer bridge between accounts, management reporting and transfer pricing analyses. That same mapping can support CbCR and then PCbCR preparation and reconciliation.

Timing and data management are important here. Bringing elements of transfer pricing analysis such as functional changes or business restructurings forward in your planning cycle improves both tax certainty and the reliability of Pillar Two forecasts. Automation and sound data management can help you build a solid foundation for your business choices, as well as supporting informed discussions with stakeholders about expected effective tax rates, liquidity and potential exposure.

Optimising data and processes

The objective is not to eliminate differences, but to understand and control them: to ensure that where figures diverge, the reasons are clear, documented and defensible. Data, insight and understanding should go hand in hand. Our experts can help you see this bigger picture, so the various teams and data systems strengthen each other rather than running in parallel.

For CFOs and CEOs, the strategic question is how to view this as more than just compliance exercise. The real challenge of obligations such as Pillar Two, PCbCR and transfer pricing is not technical, but rather organisational. At Baker Tilly, we aim to help you to integrate these obligations into a coherent framework, making you are far more likely to avoid unpleasant surprises and costs. By putting these abstract insights to work, we can help you predict trends, minimise risks, identify opportunities and optimise operations.

Would you like to know more? Reach out to Baker Tilly. Our Transfer Pricing, Pillar 2 and International Tax experts would be happy to help.

The legislation and regulations in this area may be subject to change. We recommend that you discuss the potential impact of this with your Baker Tilly advisor.