BEPS Pillar Two is the OECD’s global minimum tax framework. It requires multinational groups with consolidated revenues of at least €750 million to pay an effective tax rate of at least 15% in every jurisdiction where they operate. Where the effective rate falls below that floor, a top-up tax brings it back to 15%.
The rules are known as GloBE – Global Anti-Base Erosion. They were agreed in October 2021 by more than 135 jurisdictions under the OECD/G20 Inclusive Framework, and have been in force in the European Union since financial year 2024.
This guide explains what the rules require, who they apply to, how the calculation works, and what the compliance obligations mean in practice.
BEPS 2.0: Pillar One and Pillar Two
Pillar Two is one half of a package usually called BEPS 2.0 – the second phase of the OECD’s Base Erosion and Profit Shifting project. The two pillars address different problems.
Pillar One deals with where profits are taxed. It reallocates a portion of the taxing rights over the largest and most profitable multinationals to the jurisdictions where their customers are, rather than only where the companies have a physical presence. Its progress has been slower and its implementation remains uncertain.
Pillar Two deals with how much profit is taxed. It sets a floor: 15% effective tax, jurisdiction by jurisdiction, regardless of where profits are booked. This is the part that has been implemented, and the part that finance and tax teams are dealing with now.
The underlying logic of Pillar Two is straightforward. If every jurisdiction where a group operates taxes its profits at 15% or more, there is no advantage to shifting profit into low-tax jurisdictions – because the shortfall gets collected anyway, somewhere. The complexity lies entirely in the mechanics of measuring and collecting it.
Who Is in Scope of Pillar Two?
A multinational group falls within scope if its consolidated revenue is €750 million or more in at least two of the four fiscal years preceding the year in question.
The threshold applies at group level, based on the consolidated financial statements of the ultimate parent entity. That has two consequences worth noting:
A small subsidiary of a large group is in scope. The test looks at the group, not the entity. A ten-person operation in Romania belonging to a €2 billion group is subject to the rules.
Non-EU groups are affected too. A US or Japanese parent with European subsidiaries falls within EU rules through those subsidiaries, regardless of what its home jurisdiction does.
Certain entities are excluded from the scope of the rules, including government entities, international organisations, non-profit organisations, pension funds, and certain investment and real estate investment funds – though the calculation may still take their results into account in some circumstances.
How the Effective Tax Rate Is Calculated
This is where Pillar Two diverges from any tax calculation a group has done before, and it is worth being precise about the sequence.
Step 1 – Determine GloBE income for each entity. Starting from the accounting profit used in the group’s consolidated financial statements, a series of prescribed adjustments produce “GloBE income”. These adjustments cover items such as excluded dividends, excluded equity gains and losses, certain policy-disallowed expenses, and prior period errors.
Step 2 – Determine adjusted covered taxes. The tax figure includes current tax, plus movements in deferred tax subject to a recast at the minimum rate, adjusted for items such as uncertain tax positions and taxes on excluded income.
Step 3 – Blend by jurisdiction. GloBE income and covered taxes are aggregated for all group entities in the same jurisdiction. This is what makes Pillar Two jurisdictional rather than entity-level: a profitable low-taxed entity can be offset by a highly taxed one in the same country, but not by one in another country.
Step 4 – Calculate the jurisdictional ETR. Adjusted covered taxes divided by GloBE income, per jurisdiction.
Step 5 – Determine the top-up tax percentage. If the ETR is below 15%, the difference is the top-up tax percentage. An ETR of 11% produces a top-up of 4 percentage points.
Step 6 – Apply it to excess profit. The top-up percentage applies not to all GloBE income, but to income remaining after the substance-based income exclusion (see below).
The practical significance of the jurisdictional blend is often underestimated: a group cannot assess its exposure by looking at statutory tax rates. A jurisdiction with a headline rate of 20% can still produce an ETR below 15% once timing differences, incentives, and the GloBE adjustments are applied.
The Three Charging Mechanisms: QDMTT, IIR and UTPR
Once a top-up tax is calculated, the question becomes which country collects it. Three mechanisms apply, in a defined order.
QDMTT – Qualified Domestic Minimum Top-up Tax
A jurisdiction can enact its own domestic minimum tax, charging the top-up on its own low-taxed entities before any other country can claim it. QDMTT takes priority over the other two mechanisms.
Most EU member states have introduced QDMTT regimes, and the reason is simple: without one, the revenue from low-taxed profits earned in their territory would be collected by another country’s treasury. For groups, the practical effect is that much of the Pillar Two liability is settled locally, jurisdiction by jurisdiction, rather than centrally.
IIR – Income Inclusion Rule
Where no QDMTT applies, the Income Inclusion Rule charges the top-up tax at the level of the parent entity. It works top-down: the ultimate parent entity applies it first, and if its jurisdiction has not implemented an IIR, the obligation moves down to intermediate parent entities that have.
UTPR – Undertaxed Profits Rule
The UTPR is the backstop. Where a top-up tax has not been collected under a QDMTT or an IIR – typically because the relevant jurisdictions have not implemented the rules – the amount is allocated among other group entities in jurisdictions that have adopted the UTPR, usually by denying deductions or making an equivalent adjustment.
The UTPR is what makes the framework difficult to opt out of: a group headquartered in a jurisdiction that has not implemented Pillar Two can still face the charge through its subsidiaries elsewhere.
The Substance-Based Income Exclusion
Pillar Two is designed to target profit shifting, not genuine economic activity. The substance-based income exclusion (SBIE) carves out a return on real substance before the top-up tax applies.
The exclusion is calculated as a percentage of two things: eligible payroll costs and the carrying value of eligible tangible assets in the jurisdiction. During a ten-year transition period, the percentages started higher and decline annually until reaching the long-term rates of 5% of payroll and 5% of tangible assets.
The consequence is that a jurisdiction with a low ETR but substantial employees and physical assets may face little or no top-up tax, while one with the same ETR and minimal substance faces the full charge. It also means that payroll and fixed asset data – information that usually lives in HR and asset management systems rather than the tax function – becomes part of the tax calculation.
Safe Harbours
Running a full GloBE calculation for every jurisdiction, every year, would be disproportionate for groups with operations in dozens of countries, most of them plainly above the threshold. Safe harbours reduce that burden.
The Transitional CbCR Safe Harbour allows a jurisdiction to be excluded from full calculation for the transition period if it passes any one of three tests, using data from the group’s Country-by-Country Report:
- De minimis test – revenue below €10 million and profit before tax below €1 million in the jurisdiction
- Simplified ETR test – a simplified effective tax rate above a threshold that rises over the transition period
- Routine profits test – profit before tax not exceeding the substance-based income exclusion amount
Passing any test means the top-up tax for that jurisdiction is deemed to be zero for the year.
Two practical points matter here. First, safe harbours reduce the compliance burden but do not eliminate it – the tests themselves require data and documentation. Second, they depend on the group’s CbCR being of adequate quality, which for many groups turns out to be a stronger assumption than expected.
The GloBE Information Return and Filing Deadlines
The GloBE Information Return (GIR) is the standardised filing that in-scope groups must submit. It is substantial: jurisdiction-level data on GloBE income, covered taxes, effective tax rates, top-up tax computations, safe harbour elections, and entity-level detail – commonly several hundred data points per jurisdiction.
The deadlines are:
- 18 months after the end of the first fiscal year in scope
- 15 months after the end of each subsequent fiscal year
Alongside the GIR, most jurisdictions require a separate domestic filing and payment mechanism for their QDMTT, on their own timetable.
The length of the first deadline has proved deceptive. Eighteen months sounds generous, but the return requires data that most groups were not collecting in a structured form when the period began – which means the work starts well before the filing window opens.
Implementation Status Across Jurisdictions
The European Union implemented Pillar Two through the Minimum Tax Directive (Council Directive 2022/2523), adopted in December 2022. Member states were required to transpose it into national law, with the IIR and QDMTT generally applying from financial year 2024 and the UTPR from 2025. Romania transposed the directive through national legislation applying from the 2024 financial year.
Outside the EU, implementation has proceeded at different speeds. The United Kingdom, Japan, South Korea, Canada, Australia, Switzerland and a number of other jurisdictions have enacted rules, while others have announced timelines or remain undecided.
The United States has not adopted the GloBE rules, which has been a persistent source of uncertainty – including questions about how US-parented groups are treated under other jurisdictions’ UTPR provisions.
Because the position continues to evolve, in-scope groups should verify the current status for each jurisdiction where they operate rather than relying on a general summary. The OECD maintains the authoritative reference materials, and the major advisory firms publish regularly updated implementation trackers.
What Pillar Two Means for Finance Teams
Most published guidance on Pillar Two addresses the interpretation of the rules. The operational challenge is different, and it is where in-scope groups have found the work concentrated.
The data does not exist in one place
A GloBE calculation draws on consolidated financial data, statutory accounts, current and deferred tax detail by entity, payroll costs, tangible asset carrying values, and jurisdiction-level allocations. These sit in the consolidation system, in local ledgers, in tax provisioning tools, in HR systems, and in fixed asset registers.
It is not a one-off exercise
An impact assessment can be done once, with effort. Compliance is a recurring cycle: every reporting period, for every jurisdiction, with an audit trail linking the filed figure back to source.
The numbers must reconcile with the financial statements
Pillar Two figures appear in tax disclosures and are reviewed by auditors. A calculation that cannot be traced back to the consolidation is a problem regardless of whether the answer is right.
This is why in-scope groups increasingly manage Pillar Two on the same platform used for financial consolidation, rather than in a separate tax model: the source data is already there, governed and auditable.
Read more: BEPS Pillar Two and corporate tax reporting with CCH® Tagetik →
Frequently Asked Questions about BEPS Pillar Two
What is BEPS Pillar Two?
BEPS Pillar Two is the OECD’s global minimum tax framework, requiring multinational groups with consolidated revenues of at least €750 million to pay an effective tax rate of at least 15% in every jurisdiction where they operate. Where the effective rate falls below 15%, a top-up tax makes up the difference. The rules are known as GloBE – Global Anti-Base Erosion – and were agreed by more than 135 jurisdictions in October 2021.
What is the difference between Pillar One and Pillar Two?
Pillar One addresses where profits are taxed, reallocating some taxing rights over the largest multinationals to the jurisdictions where their customers are located. Pillar Two addresses how much profit is taxed, setting a 15% effective minimum rate per jurisdiction. Pillar Two has been implemented across the EU and a number of other jurisdictions; Pillar One’s progress has been slower and its future remains less certain.
Who has to comply with Pillar Two?
Multinational groups with consolidated revenues of €750 million or more in at least two of the four preceding fiscal years. The test applies at group level, so subsidiaries of any size within a qualifying group are in scope. Non-EU groups with European operations are affected through those entities.
What is GloBE?
GloBE stands for Global Anti-Base Erosion. It is the name of the model rules that make up Pillar Two, defining how income is measured, how covered taxes are determined, how the effective tax rate is calculated per jurisdiction, and how any top-up tax is charged and allocated.
What is QDMTT?
QDMTT stands for Qualified Domestic Minimum Top-up Tax. It allows a jurisdiction to collect the Pillar Two top-up tax on low-taxed entities within its own territory, taking priority over the Income Inclusion Rule and the UTPR. Most EU member states have introduced QDMTT regimes, since without one the revenue would be collected by another country.
What is the Income Inclusion Rule (IIR)?
The Income Inclusion Rule charges top-up tax at the level of a parent entity for low-taxed profits of its subsidiaries. It applies top-down: the ultimate parent entity applies it first, and where its jurisdiction has not implemented an IIR, the obligation moves to intermediate parent entities that have.
What is the UTPR?
The Undertaxed Profits Rule is the backstop mechanism. Where top-up tax has not been collected through a QDMTT or an IIR, the UTPR allocates it among group entities in jurisdictions that have adopted the rule, typically by denying deductions. It is what prevents groups from avoiding the framework by being headquartered in a jurisdiction that has not implemented it.
What is substance-based income exclusion?
The substance-based income exclusion carves out a return on real economic activity before the top-up tax applies, calculated as a percentage of eligible payroll costs and the carrying value of eligible tangible assets in the jurisdiction. The percentages decline over a ten-year transition period to long-term rates of 5% each. The effect is that jurisdictions with genuine operations face a smaller charge than those with the same effective tax rate but minimal substance.
What are Pillar Two safe harbours?
Safe harbours allow a jurisdiction to be excluded from full GloBE calculation where a simplified test demonstrates that no top-up tax would arise. The Transitional CbCR Safe Harbour uses Country-by-Country Report data and offers three alternative tests: a de minimis test, a simplified effective tax rate test, and a routine profits test. Passing any one means the top-up tax for that jurisdiction is deemed to be zero for the year.
What is the GloBE Information Return (GIR)?
The GloBE Information Return is the standardised filing required from in-scope groups, covering jurisdiction-level GloBE income, covered taxes, effective tax rates, top-up tax calculations, safe harbour elections and entity details – typically several hundred data points per jurisdiction. It is due 18 months after the end of the first fiscal year in scope, and 15 months after each subsequent year.
When did Pillar Two come into force?
In the European Union, the Minimum Tax Directive was adopted in December 2022, with the Income Inclusion Rule and domestic minimum taxes generally applying from financial year 2024 and the UTPR from 2025. Other jurisdictions have implemented their own timetables, and some have not yet adopted the rules.
Can Pillar Two compliance be managed in spreadsheets?
For a one-off impact assessment, it is feasible. As a recurring compliance process it becomes difficult to sustain: jurisdiction-level calculations every period, data drawn from consolidation, tax, payroll and fixed asset systems, safe harbour testing, and an audit trail linking filed figures back to source. The volume of data points per jurisdiction and the need for reconciliation with the financial statements are what typically drive groups toward a governed platform.
Sources and further reading
- OECD – Global Anti-Base Erosion Model Rules (Pillar Two) – the model rules, commentary and administrative guidance
- European Commission – Council Directive (EU) 2022/2523 on ensuring a global minimum level of taxation
This article explains the framework in general terms and is not tax advice. In-scope groups should confirm their position with their tax advisors, since implementation status and administrative guidance continue to evolve.
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About Inulta
Inulta is a Platinum-tier CCH Tagetik partner specialising in finance transformation, with over 100 CCH Tagetik-certified experts and more than 250 enterprise performance management projects delivered across financial services, manufacturing, automotive, energy, and other complex industries. Named Best EPM Implementation Partner by CCH Tagetik at the global InTouch26 conference in May 2026.