For many insurance groups, the first year of Pillar Two implementation was dominated by data gathering, methodology development and establishing governance processes. While most carriers successfully navigated the initial compliance cycle, Year Two presents a different challenge.
The focus shifts from determining whether the rules apply to understanding where top-up tax exposures remain, how safe harbours can be maximised and how emerging domestic minimum tax regimes interact with existing tax and finance processes. The introduction of Bermuda’s corporate income tax regime has added a further layer of complexity for global insurance groups with Bermuda operations.
Reassessing Pillar Two safe harbour eligibility
One of the most important Year Two exercises is a structured reassessment of safe harbour positions. Many groups relied heavily on the Transitional Country by Country Reporting (CbCR) Safe Harbour during the first year of compliance. The OECD subsequently extended the transitional safe harbour period, providing continued compliance relief for qualifying jurisdictions.
However, groups should not assume that jurisdictions qualifying in Year One will continue to qualify indefinitely. Changes in profitability, deferred tax positions, investment returns or business restructuring can alter eligibility. Insurance carriers in particular may experience volatility arising from investment portfolios, catastrophe events or reserve movements, all of which can affect jurisdictional effective tax rates.
In addition, the OECD has introduced a Simplified Effective Tax Rate (ETR) Safe Harbour intended to provide a longer-term simplification mechanism beyond the transitional period. Groups should evaluate whether this may offer a more sustainable compliance solution in future years.
Strengthening Pillar Two data quality, governance and controls
Year One exposed a common challenge across the insurance sector: data availability was often more problematic than technical interpretation of the rules.
Many carriers found themselves combining information from finance, tax, actuarial and investment systems that were not originally designed to support Pillar Two calculations. Manual adjustments, spreadsheets and offline reconciliations were frequently required to produce filing ready outputs.
Strengthening data governance and embedding Pillar Two requirements into existing reporting processes should then be the focus for Year Two. Controls should be developed around key data points, including deferred taxes, covered taxes, permanent differences, tax credits and substance based income exclusion calculations. A robust control framework will reduce compliance risks and improve audit readiness.
How Bermuda’s Corporate Income Tax affects Pillar Two calculations
Perhaps the most significant development for insurance groups has been Bermuda’s introduction of a 15% corporate income tax applicable to multinational groups with annual revenues of at least €750 million which became effective from 1 January 2025.
Historically, many insurance groups operated substantial underwriting, reinsurance and investment activities in Bermuda without an income tax charge. The new tax fundamentally changes this position.
For many groups, the Bermuda tax liability may reduce or eliminate potential Pillar Two top-up tax exposure that might otherwise arise under the Income Inclusion Rule (IIR) or Undertaxed Profits Rule (UTPR). However, achieving this outcome requires careful modelling of both regimes.
Key Bermuda tax considerations for insurance groups
- Economic transition adjustment opportunities
- Recognition and utilisation of tax attributes
- Interaction between Bermuda tax credits and GloBE covered taxes
- Deferred tax accounting implications
- Alignment of Bermuda tax reporting with Pillar Two calculations.
The Bermuda legislation includes several insurance-specific provisions, underscoring the need for close coordination between tax, finance and actuarial teams.
Pillar Two tax accounting and financial reporting considerations
As Pillar Two becomes embedded in annual reporting cycles, tax accounting considerations move to the forefront.
Year Two should include a review of:
- Pillar Two disclosure processes
- Deferred tax methodologies
- Audit evidence requirements
- Forecasting of current and deferred Pillar Two liabilities
- Alignment between statutory reporting and tax compliance functions.
Investors, regulators and boards increasingly expect greater transparency regarding assessing and complying with global minimum tax exposures. Consequently, insurance groups should ensure reporting processes are scalable and sustainable rather than relying on the temporary solutions often adopted during implementation.
Preparing for the next phase of Pillar Two compliance
While the first year of Pillar Two was primarily a compliance exercise, Year Two is different. Insurance groups must now refine processes, improve data quality, revisit safe harbour opportunities and understand the interaction between Pillar Two and newly enacted domestic minimum tax regimes, most notably Bermuda’s corporate income tax.
Carriers that go beyond minimum compliance and adopt a more strategic approach will be the best positioned to reduce administrative burden, minimise unexpected top-up tax exposures and respond effectively as the global minimum tax framework continues to evolve.
Need support with Pillar Two compliance or Bermuda Corporate Income Tax?
Our insurance tax specialists support carriers through the next phase of Pillar Two implementation, helping to streamline compliance processes, strengthen governance, manage emerging tax risks and adapt to evolving global minimum tax requirements, including Bermuda’s Corporate Income Tax regime.
If you would like to discuss the impact of Pillar Two on your business, contact Chris Riley.
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