Finance professionals predict forthcoming international regulatory reforms will have a significant impact on their firm's finance function, research has found.

The latest EY Tax and Finance Operations Survey (TFO) questioned 1,600 chief financial officers (CFO), and heads of tax and finance professionals across 32 jurisdictions, including 150 based in the UK.

EY explained the reporting period for global 15% minimum tax rate called for under the base erosion and profit shifting (BEPS) Pillar Two is set to come into effect in the UK from 31 December.

It added that its survey found 89% of UK finance leaders expected their tax planning and business operations to experience "moderate" to "significant" change once BEPS 2.0 is implemented.

However, only 42% of UK respondents said they had completed a Pillar Two impact assessment.

The UK legislation for Pillar Two was included in the recently enacted Finance (No. 2) Act 2023 and amendments have already been proposed for next year's Finance Bill to keep the UK legislation in line with developments at an OECD level, EY added. The UK government has committed to reporting on progress of the worldwide implementation of Pillar Two at the chancellor's 2023 Autumn Statement.

EY UK&I partner and tax markets leader Laura Mair said: "UK finance teams are under substantial pressure as they contend with an unprecedented period of change across the domestic and global regulatory landscape.

"The initial BEPS reporting period begins in less than six months and, while UK companies are further ahead in preparations than their global counterparts, the majority still have not finished assessing how this impending change will affect their organisation.

"Businesses will need to adapt data sourcing, processes and controls to account for the new regime's reporting and compliance requirements, and these preparations should be made as swiftly as possible."

Tax function modernisation

EY also said businesses were facing an increasingly complex regulatory environment that was driving a growing number of organisations to adapt their operations - 97% of UK respondents said they were changing their tax and finance operating models, compared to 73% in 2018.

However, EY added that nearly half (47%) of UK finance leaders cited the lack of a sustainable plan for data and technology as the biggest barrier to achieving their vision for a transformed tax function.

The survey also found that more than two-thirds (69%) of respondents were planning to reduce their firm's tax and finance function budget over the next two years, while 15% said budgets would be frozen.

EY UK&I tax and finance operate leader Amy Underwood said: "UK businesses are significantly transforming their finance operating models as they continue to explore what the modern tax function looks like.

"This is driven by the evolving regulatory landscape and challenging economic conditions, with today's finance leaders required to navigate the rising cost of capital, shifting workforce demographics, frozen or falling budgets and shareholder unrest, all while planning for growth."