Pillar Two Global Minimum Tax

Pillar Two is the second component of the OECD/G20 Inclusive Framework's two-pillar solution to address tax challenges arising from the digitalisation of the economy. Agreed in October 2021 by more than 130 jurisdictions, it establishes a global minimum effective corporate tax rate of 15% on multinational enterprises (MNEs) with consolidated annual revenues of at least €750 million.

The regime operates through a set of interlocking rules known as the Global Anti-Base Erosion (GloBE) Rules:

• The Income Inclusion Rule (IIR) allows a parent jurisdiction to levy a top-up tax on low-taxed income of foreign subsidiaries.
• The Undertaxed Profits Rule (UTPR) acts as a backstop, reallocating top-up tax to other jurisdictions where the IIR does not apply.
• The Qualified Domestic Minimum Top-up Tax (QDMTT) lets the source country itself collect the top-up before another jurisdiction can.
• A treaty-based Subject to Tax Rule (STTR) permits source states to tax certain intragroup payments taxed below 9% in the recipient state.

Effective tax rates are calculated jurisdiction-by-jurisdiction, using financial-accounting profits with specified adjustments. A substance-based income exclusion carves out a portion of payroll and tangible-asset returns, phasing down over ten years.

Implementation began on 1 January 2024 in the European Union (via Council Directive 2022/2523), the United Kingdom, South Korea, Japan, Canada, Australia and others. The United States has not enacted Pillar Two but retains its pre-existing GILTI regime; whether GILTI qualifies as an IIR remains contested. In June 2025, G7 finance ministers signalled a "side-by-side" arrangement that would partially shield US-parented groups from the UTPR.

Pillar Two is projected by the OECD to raise roughly USD 155–192 billion in additional global corporate tax revenue annually and to compress incentives for profit shifting to low-tax jurisdictions such as Ireland, Bermuda, and the Cayman Islands.