Author: Mr. Charalambos Papasavvas
Advocate – Legal Consultant
Managing Partner of PAPASAVVAS & LISKAVIDOU LLC
Founder of RELOTECH EXPERTS
Founder of NEOCOURSES INNOVATION CENTER
As businesses near the end of the 2024 calendar year, it’s an opportune moment to tackle tax accounting and reporting hurdles to prevent surprises and ease the strain of the financial statement close. Global organizations have faced disruptions from geopolitical tensions, rising inflation, shifting interest rates, and supply chain adjustments. Alongside these, fast-changing
tax regulations, new legislative and administrative updates, and growing calls for tax transparency have heightened the complexity of reporting and increased tax-related risks. Sustainability efforts, including environmental, social, and governance (ESG) factors, are introducing additional dimensions to tax reporting obligations.
Significant tax policy shifts are also on the horizon in various regions, driven by the Organisation for Economic Co-operation and Development’s (OECD) Base Erosion and Profit Shifting (BEPS) 2.0 Pillar Two initiative and ESG-related measures, such as carbon adjustment reporting and revised tax incentive goals. These anticipated changes bring uncertainty, challenging tax teams to evaluate and plan ahead. However, proactive steps taken now can streamline year-end tax accounting tasks, mitigate risks, and reduce end-of-year pressure.
In essence, we’ve entered a new era of tax reporting where forward-thinking strategies in tax accounting and risk management offer a distinct edge. Here are six critical areas tax accounting teams should focus on as they prepare for the 2024 year-end and look toward 2025.
1. Pillar Two global minimum taxes
The local adoption of the OECD’s Pillar Two Global Anti-Base Erosion (GloBE) Model Rules marks a major evolution in tax policy. These rules set a 15% global minimum corporate income tax rate for multinational enterprises (MNEs) with group revenues of €750 million or more in two of the four prior fiscal years. Even companies with effective tax rates exceeding 15% might face a top-up tax under these provisions. So far, 41 jurisdictions have implemented local versions of the GloBE Rules, posing significant compliance hurdles for tax accounting teams. The intricate calculations—requiring detailed entity- and jurisdiction-specific assessments across all operating regions—demand precision and care.
The uneven rollout of these rules globally adds further layers of difficulty to planning and reporting for minimum taxes. While many regions are still drafting legislation, the OECD continues to release supplementary guidance, muddying preparation efforts. Ambiguities in some rule aspects call for thorough analysis of local laws. Companies must also brace for oversight from financial auditors and, eventually, tax authorities, underscoring the need for strong documentation and internal controls.
Tax accounting response
To address these challenges, tax teams should take a forward-looking, methodical approach. Early planning is essential—assessing the rules’ impact by pinpointing affected regions, estimating potential top-up taxes, and examining how they interact with current tax setups prepares organizations for new requirements. Establishing reliable processes and controls to gather and manage data accurately and promptly is equally vital. This might mean enhancing or adopting new accounting and tax systems to handle the complexity and volume of data or enlisting external support.
Coordination with external auditors and stakeholders is recommended. Early discussions with auditors to settle on methods, assumptions, and materiality levels can prevent last-minute issues during tight close schedules. Internal collaboration with finance, IT, and legal teams ensures seamless workflows for minimum tax calculations. Detailed records of interpretations and assumptions are key to justifying tax positions and proving compliance. Running test calculations with preliminary data helps spot problems early and refine approaches before year-end, enabling smoother adherence to rules, risk management, and fewer surprises at close.
2. Navigating macroeconomic and legislative challenges
The global economy continues to pose obstacles with direct effects on tax accounting and reporting. Regional downturns, fluctuating interest rates, and geopolitical instability require thoughtful handling. Lower profits may affect deferred tax asset recoverability, prompting a review of valuation allowances or recognition of new deferred tax assets. Companies that refinanced in 2024 or plan to in 2025 need to weigh how these moves influence cash flows and treasury needs.
Economic-driven asset impairments could carry tax implications needing attention. Currency fluctuations may alter the tax costs of overseas operations and the conversion of foreign tax balances. Swift legislative changes, often tied to economic shifts, can impose new duties or modify existing ones.
Tax accounting response
Tax teams should pursue a holistic strategy to tackle these issues. Working closely with finance and operations keeps them updated on performance, projections, and key decisions, enabling timely reviews of deferred tax asset realization, subsidiary earnings reinvestment, and new tax attributes.
Staying abreast of tax law updates across all operating regions ensures timely responses to changes affecting tax positions and compliance duties. Monitoring currency trends and exploring hedging or financial tools can mitigate foreign exchange risks. Managing these elements improves tax reporting precision and aligns with broader business goals.
3. Embracing public country-by-country reporting and ESG disclosures
Growing demands for tax transparency and sustainability are reshaping reporting expectations. Public country-by-country reporting (CbCR) and the integration of tax into ESG disclosures are gaining traction. Investors, regulators, and the public increasingly seek detailed insights into companies’ tax practices, contributions, and approaches. Ensuring consistency and accuracy in tax data across financial statements, CbCR, and ESG reports requires strong data oversight and cross-departmental teamwork. While tax teams may not lead ESG efforts, their involvement
ensures tax perspectives are well-represented.
Tax accounting response
Tax teams should take an active role in transparency and sustainability efforts. Participating in ESG initiatives allows them to shape tax-related input. Collaborating with finance, legal, and sustainability teams ensures tax data consistency across reports like financial filings, CbCR, and transparency disclosures, potentially reconciling gaps in existing financial and tax data. Crafting a transparency approach that reflects organizational values and voluntary disclosure goals meets stakeholder needs while safeguarding sensitive details. Enhancing systems to track regulatory changes and gather and verify data for CbCR and ESG reporting maintains accuracy. Integrating tax into ESG efforts builds trust and highlights a commitment to ethical tax
practices.
4. New income tax disclosure requirements under US GAAP ASU 2023-09
The Financial Accounting Standards Board’s (FASB) Accounting Standards Update (ASU) 2023-09 brings notable changes to income tax disclosures under US GAAP, effective for public entities after December 15, 2024, and other entities after December 15, 2025 (early adoption allowed). These updates aim to boost transparency with detailed tax profile data. Tax teams must gear up for increased detail, including taxes paid by jurisdiction, specifics on tax law changes, valuation allowances, and carryforwards. Many firms may lack systems to capture this level of data, requiring upgrades or adjustments. Meeting these demands could stretch teams already under year-end pressure, and firms should consider the public and competitive impacts of greater disclosure.
Tax accounting response
Companies should start by fully understanding the new rules. Strategizing disclosures to balance compliance with competitive concerns, and consulting auditors early, helps address issues and align on methods, reducing late surprises. A detailed plan—outlining requirements, timelines, roles, and resources—prepares firms for 2025 and cuts rework.
5. Preparing for the “sunset” of US TCJA provisions
Key provisions of the 2017 US Tax Cuts and Jobs Act (TCJA) will lapse by the end of 2025, affecting tax strategies and finances with expiring deductions and credits. Tax teams should simulate these shifts to gauge impacts on liabilities, deferred tax assets, and overall plans.
Tax accounting response
Staying updated on TCJA-related policy talks and modeling scenarios helps anticipate changes.
Reviewing current strategies—deductions, credits, deferrals—optimizes positions. Assessing deferred tax effects, like book-tax differences and cash flow needs, mitigates risks and prepares firms for transitions.
6. Accelerating year-end tax accounting work
The year-end close is taxing for teams managing complex tasks under tight deadlines, with evolving laws adding risk and stress. Tax accounting response Shifting tasks out of the close cycle reduces pressure. Actions like documenting provision adjustments, verifying deferred tax rates, reconciling balances, assessing controls, estimating payments, reviewing uncertain positions, analyzing valuation needs, evaluating reinvestment plans, calculating discrete transactions, and collaborating with auditors can lighten the year-end load, freeing teams to focus on quality and high-risk areas.
Looking ahead
This new tax reporting era, shaped by disruptions, policy shifts, and sustainability, demands creative thinking. Teams must meet expanding requirements, track legislation and standards, and brace for disputes. Proactive steps improve accuracy and add value by seizing opportunities.
Summary
Tax departments should align with finance and business units to sync reporting with organizational shifts while handling routine tasks efficiently. As demands grow, positioning for a strong year-end close contributes to broader goals.
