Published on January 10, 2025

Understanding consolidation perimeters, CbCR and Pillar 2: a practical guide

The regulatory issues surrounding Pillar 2 (Global Anti-Base Erosion Rules) are complex, particularly as regards the coordination of consolidation perimeters, Country-by-Country Reporting (CbCR) and Pillar 2.

In this regulatory jungle, it’s crucial to understand the specifics of each scope to avoid mistakes and optimize compliance.

In this article, find out how to simplify this headache with a methodical approach.

And to go even further, watch our exclusive video hosted by Marie-Laure Navelot, finance expert at kShuttle, who explains how to “kill three birds with one stone” when it comes to perimeter management.

The three perimeters explained

1. Scope of consolidation

The scope of consolidation is based on IFRS 10 which defines the rules governing the control of one entity over another. Under this standard :

An entity is included if it is directly or indirectly controlled by the parent entity.
Materiality* is a key factor: only entities deemed “material” by the parent company are taken into account.

Non-controlled entities are accounted for by the equity method, based on their interaction with other Group entities.

*Definition of materiality : Under IFRS, materiality materiality refers to the materiality of an item of information or an entity in the financial statements. Information is deemed “material” if its omission or misrepresentation could influence the economic decisions of users of the financial statements.

Applied to consolidated entities, this means that only entities with a significant significant impact on the consolidated financial statements are included in the scope of consolidation.

Criteria for judging materiality : Criteria for assessing materiality generally include:

– The size of the assets, sales or net income of the entity in question in relation to the group as a whole.

– The entity’s strategic importance for the Group’s activities (e.g. key entities for strategic or operational development).

– Regulatory or legal requirements that could impose the inclusion of certain entities, even if they are not “material” in financial terms.

2. CbCR perimeter

Country-by-Country Reporting (CbCR) focuses on jurisdiction, not materiality. This means:

All controlled entities, including non-material ones, must be included.
Transitional Safe Harbor measures apply only to entities within the CbCR perimeter.

Thus, the fundamental difference between the scope of consolidation and that of the CbCR lies in the exclusion or otherwise of entities deemed non-material.

3. Pillar 2 perimeter

The Pillar 2 perimeter is based on the CbCR perimeter, but with two important additions:

Non-controlled entities in which the parent company owns 50% or more, known as Joint Ventures.
Investment entities as defined in IFRS 10.

These additions require special attention to avoid reporting errors and ensure compliance.

A 3-step methodology for managing your perimeters

For successful coordination, adopt a clear methodology:

Start with the scope of consolidation: Draw up an exhaustive inventory of all entities, even those not controlled.
Extend your analysis to include all controlled entities, regardless of materiality.
Finalize with Pillar 2 perimeter Add Joint Ventures and investment entities.

Careful planning and precise data collection are essential to meet the requirements of all three areas.

Keys to avoiding mistakes

Don’t overlook non-controlled entities: Even if they are not consolidated, they may be essential for Pillar 2.
Treat permanent establishments as separate entities: This ensures compliant management in the CbCR and GloBE rules.
Clearly identify investment entities: they are subject to specific calculations in the GloBE rules.

Watch the video to understand everything

To learn more about these concepts, watch Marie-Laure Navelot‘s video, which guides you step-by-step through these complex perimeters. An essential resource for mastering your tax obligations!

Conclusion

Managing the scope of consolidation, CbCR and Pillar 2 may seem daunting, but with the right methodology and the right tools, it becomes much more accessible.

By structuring your data and following a step-by-step approach, you can not only meet regulatory requirements, but also turn this challenge into a strategic opportunity.

🎥 Watch the full replay of our web series.

🌍 Find out more about our solutions :

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