Group of young diverse people standing

How a mobile workforce is shaping Pillar Two compliance

Remote work presents unique challenges for businesses dealing with BEPS 2.0. 

In brief:

  • Remote and hybrid work models can increase risks of non-compliant tax accounting for Pillar Two.
  • The shift toward remote work challenges traditional assumptions in tax planning. 
  • Businesses need to integrate employee mobility considerations into the wider tax discussion on the impact of BEPS.

The “next normal” of cross-border work is increasingly marked by a complex interplay of trends toward hybrid and remote work flexibility, which pose potential tax risks for global businesses.

The EY 2023 Work Reimagined Survey finds that 50% of knowledge workers would prefer working one day or less per week in the office. Meanwhile, the EY 2024 Mobility Reimagined Survey showed that nearly all employers (98%) report tracking domestic and international employee movements, compared to just 49% last year.

This growing prevalence of flexible work arrangements and monitoring of locations by employers presents new risks as governments around the world implement the Pillar Two global minimum tax project led by the Organisation for Economic Cooperation and Development (OECD). Chief among these challenges is that companies deduct payroll taxes based upon where their employers reside or work, not where they are paid. As such, where employees are payrolled may no longer be a reliably accurate representation of where people actually are, or for whom they are actually working. If a worker establishes a presence in a jurisdiction a company doesn’t know about, it could potentially expose the business to Pillar Two taxes there, among other consequences including creating a permanent establishment for tax purposes and other risks. Workforce mobility has expanded beyond international assignments to become a key element of organizational talent strategies because of the growth of flexible work and the cross-border race for talent. As a result, it is an ever-more important tax issue.

Cross-border workforce mobility can have a dual impact within the tax function. On the one hand, it creates potential tax risks and compliance demands, such as permanent establishment (PE). On the other, workforce mobility aids in the recalibration of operating models and supply chains and may unlock tax incentives. Accurately tracking employee locations is increasingly critical for compliance with Pillar Two and navigating other cross-jurisdictional tax regulations.

“COVID-19 highlighted the fragility of supply chains and the importance of redundancy and resiliency, driving changes in operational structures. A fundamental question now is whether existing operating models are still fit for purpose in light of changing dynamics, technology use and labor empowerment,” says Jonny Lindroos, Americas Market Leader - International Tax and Transaction Services (ITTS). The fact that Pillar Two introduces a global minimum tax rate is causing some businesses to reevaluate the attractiveness of their principal hub locations, he adds. “The equalization of rates under Pillar Two places greater emphasis on other factors like labor availability, customer location and quality of life.”

Revisiting priorities

Not withstanding the technical complexities, it is imperative to recognize the pivotal role the workforce plays in successfully executing Pillar Two strategies.

“The conversation around Pillar Two is missing a critical element – the impact of people,” says Andrea Filippelli, Senior Manager, People Advisory Services, Ernst & Young LLP. The real challenge lies beyond tax compliance; it's effectively managing the people piece that is more complex and vital. A gap needs to be bridged for more comprehensive and effective tax strategy formulation."

The conversation around BEPS 2.0 is missing a critical element – the impact of people.

Understanding where employees are working has always been important, but it was simpler when an entirely local workforce was common. That made payroll an accurate capture of expenses for local employees performing services for the local entity. The prevalence of remote and hybrid work, the ease with which many borders can be crossed, and the lack of appropriate tracking mechanisms has upended those conventions.


Ideally, focusing on compliance with the immediate demands of the new tax regulations should give way to a more nuanced consideration phase in which workforce policies, including mobility, take on more significance due to their potential impact on tax outcomes. Together with the human resources team, tax teams should be asking whether employees are performing services for the right entities, given where they sit and the activities they perform. They should also ask if the right substance exists to the employer relationship to not just support Pillar Two compliance but also a logical review of the company’s permanent establishment exposure.  


Businesses will need to give close consideration to the movement of intellectual property or changes to supply chains in connection with Pillar Two. Making sure the workforce aligns with any such restructuring will be essential for compliance and should involve engaging a broader range of stakeholders, including human resources, legal, IT, payroll and the workforce itself. Aligning the corporate tax, payroll tax, and individual tax positions taken is vital for businesses. This complexity is heightened by the need to maintain consistency across different jurisdictions while facilitating compliance in the overall tax position.

The equalization of rates under Pillar Two places greater emphasis on other factors like labor availability, customer location and quality of life.

Workforce assumptions no longer adequate

Assumptions underlying tax consideration must withstand the scrutiny of empirical evidence. Businesses frequently infer the location and functions of their workforce, which, if unsubstantiated, can lead to tax controversy. Tax authorities are increasing tax enforcement activities, according to the most recent EY Tax Risk and Controversy survey, rigorously examining employees' physical presence and activities within their jurisdictions. Tax authorities are using more sophisticated data analytics tools and can cross-verify the presence of a company's employees against their stated functions and locations.

This increased scrutiny means organizations should both track and robustly document the roles and responsibilities of their workforce to substantiate their tax positions. Governance measures should be established to confirm adherence to objectives and expectations.

For many businesses, a challenge lies in the disparity between assumed and actual workforce operations. Businesses should adopt a dynamic approach to workforce management, one that reflects an accurate status of their employees' locations, roles and tasks. Failure to do so could lead to unintended tax consequences, including the recharacterization of income and the imposition of penalties.

In response, businesses should confirm they are properly governing and monitoring their cross-border workforce to pre-empt and address potential inquiries. A cross-functional approach, with tax departments collaborating across the organization, is key to navigating these multifaceted challenges.

“Leveraging technology to track and govern employee presence has become increasingly crucial for facilitating compliance,” Filippelli says.

Substantiating what people are doing in what location, for whom and for how long is necessary to manage tax risks related to permanent establishment and the attribution of profits. Outlining broad strategic objectives is no longer sufficient in many jurisdictions; companies must delineate the specific contributions of employees to corporate functions and the resulting profit generation. As global mobility transforms — blending more complex operating models and distributed workforces — tax analysis and governance must evolve in parallel.

How to navigate a complex compliance environment

The interplay between fulfilling business and talent requirements and adhering to tax compliance has never been more complex. The pressure to say “yes” to employee cross-border requests has been at an all-time high, and the tax team is often put in the position of saying “no” against significant opposition. Companies must strike a careful balance when their employees span multiple tax jurisdictions. This balance requires a strategy accommodating operational demands while managing tax liabilities and compliance risks.

When workforce policies must be changed as a result of tax implications, employee sentiment and corporate culture should be considered. Employee understanding of changes is important, as their acceptance and adherence to new roles and locations are key to making changes successful.

This creates a unique opportunity for the tax team to assume a more proactive and strategic role. This requires transparent communication, teaming on policy and technology, and alignment of positions between tax, human resources, IT and payroll functions.

"Pillar Two's compliance complexity demands that businesses not only grapple with more data points from diverse organizational segments but also thoroughly comprehend how the global minimum tax rules impact them to pinpoint necessary stakeholders for foundational compliance. Tax departments must be in tune with the company's commercial trajectories to align their strategies with the evolving directions of the business," Lindroos says.

Successful tax analysis and compliance hinge not only on the technical alignment with tax regulations but also on the strategic engagement of the workforce. A robust tax strategy, therefore, anticipates and incorporates the complexities of employee mobility and engagement from the outset, positioning organizations to capitalize on the strategic benefits of a comprehensive, forward-looking approach to Pillar Two compliance.


Pillar Two compliance creates tax accounting challenges relating to workforce management, especially in light of the rise of remote and hybrid work models. Businesses should consider the evolving landscape of employee mobility in a cross-functional approach, with tax departments collaborating across the organization proactively is key to success.  

Related articles

Why public disclosure will require renewed focus on CbC reporting

Public disclosure of country-by-country tax data is set to create new risks for affected multinationals. Learn more.

How Mobility functions can evolve and thrive with a workforce in flux

Mobility agility drives business resilience, reveals the EY 2024 Mobility Reimagined Survey. Learn how mobility functions can evolve to activate key drivers.

How tax accounting teams should prepare for BEPS changes

Why tax accounting teams need to prepare for the implementation of BEPS, and how the obstacles may vary from country to country. Learn more.

    About this article