How Pillar One reallocates taxing rights to market jurisdictions, how Pillar Two sets a 15% global minimum tax, and where implementation stands.
One framework, two different mechanisms
The two-pillar solution was agreed through the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS), a body that brings together more than 140 jurisdictions to negotiate international tax rules by consensus. The October 2021 statement set out the architecture: Pillar One changes where certain profits are taxed, and Pillar Two sets a floor under how much tax is paid on them. They share a political origin, but they are legally and operationally distinct. Pillar One requires a multilateral convention that has not yet entered into force; Pillar Two is implemented through domestic legislation, and is already in effect in many jurisdictions, including EU Member States under the Minimum Tax Directive.
Why the reform exists
The BEPS project began from a widely shared concern that the international tax rules, built around physical presence, allowed some large multinational enterprises to book substantial profit in jurisdictions where they had little real activity. Digitalisation intensified the concern: highly profitable businesses can serve a market remotely, without the taxable presence older rules required. The two pillars are the negotiated answer — one addressing where taxing rights sit, the other addressing how low the effective tax burden can go.
Read them on separate timelines
A compliance calendar that treats “the pillar rules” as one deadline will mislead the team. Pillar Two obligations are live now for in-scope groups, with filings and calculations tied to fiscal years already underway. Pillar One’s Amount A depends on ratification of a multilateral instrument whose timing remained uncertain as of mid-2026. Track them as two workstreams with different owners, different triggers, and different evidence.
Pillar One: reallocating a share of residual profit to market jurisdictions
Pillar One’s core element, Amount A, gives market jurisdictions a right to tax a share of the residual profit of the largest and most profitable multinational enterprises, even where the group has no physical presence there. The initial scope covers groups with global turnover above EUR 20 billion and profitability above ten percent, calculated under rules set out in the multilateral convention. For in-scope groups, twenty-five percent of the residual profit — defined as profit above ten percent of revenue — is reallocated to eligible market jurisdictions using a revenue-based allocation key, with nexus generally established by revenue sourced to the market. The reallocation is to be given effect through a multilateral convention, which also coordinates the removal of unilateral digital services taxes for covered groups.
Where it stands
The text of the Amount A multilateral convention was published in 2023, but signature and ratification by enough jurisdictions — including the largest economies where in-scope groups are headquartered — is still pending, and its entry into force remained uncertain as of mid-2026. Until then, Amount A creates no filing obligation. What it does create is a monitoring need: groups near the scope thresholds should know which entities, segments, and revenue-sourcing data would be tested if the convention takes effect.
Amount B is the quieter sibling
Pillar One also includes Amount B, a simplified pricing approach for baseline marketing and distribution activities under the arm’s length principle. Jurisdictions may choose to apply it, and it interacts with local transfer-pricing documentation rather than with the multilateral convention. It is narrower than Amount A, but more likely to touch ordinary intercompany arrangements.
Pillar Two: a 15% floor under effective tax rates
Pillar Two — the Global Anti-Base Erosion (GloBE) rules — applies to multinational groups with consolidated revenue of EUR 750 million or more in at least two of the four preceding fiscal years. For each jurisdiction where the group operates, the rules compute an effective tax rate on GloBE income, using adjusted accounting profit and adjusted covered taxes. Where that rate falls below fifteen percent, a top-up tax brings the group’s burden in that jurisdiction up to the floor. Three coordinated mechanisms collect the top-up: the income inclusion rule (IIR), under which the parent entity pays the top-up for low-taxed subsidiaries; the undertaxed profits rule (UTPR), a backstop that allocates residual top-up to other group jurisdictions; and the qualified domestic minimum top-up tax (QDMTT), which lets the low-taxed jurisdiction collect the top-up itself, ahead of the other rules.
- The effective tax rate is calculated per jurisdiction, not per entity and not at group level.
- The starting point is consolidated financial-accounting data, adjusted under the GloBE rules — it is not the local tax return.
- Substance-based carve-outs for payroll and tangible assets reduce the profit exposed to top-up tax.
- A transitional country-by-country reporting safe harbour can relieve a jurisdiction from full GloBE calculations for the initial years, but only if the underlying CbCR data is accurate and consistent.
- De minimis and other exclusions can remove low-materiality jurisdictions from the calculation, but they must be tested and documented.
The EU Minimum Tax Directive: from model rules to binding law
The European Union moved Pillar Two from model rules into binding law through Council Directive (EU) 2022/2523, adopted in December 2022. Member States transposed the directive so that the income inclusion rule applies to fiscal years beginning on or after 31 December 2023, with the undertaxed profits rule following a year later — meaning the regime has been in practical effect since the 2024 tax years for in-scope groups. The directive applies to groups above the same EUR 750 million consolidated-revenue threshold and authorises qualified domestic minimum top-up taxes, which many Member States have enacted. Because it is a directive, the operative rules sit in national legislation; groups must read the local transposition, not just the EU text, and local filing deadlines, registration duties, and safe-harbour elections can differ.
Implementation is not uniform
The EU is a leading implementation bloc, not the only one. Other jurisdictions have enacted their own GloBE legislation on different timetables, and some have not legislated at all. A group’s obligations therefore depend on where its entities sit, where the parent is located, and which jurisdictions have an IIR, UTPR, or QDMTT in force for the relevant year. The compliance map needs to be rebuilt each fiscal year as more regimes come online.
Practical readiness: data, safe harbours, and documentation
For in-scope groups, Pillar Two is first a data exercise. The per-jurisdiction effective-rate calculation draws on consolidated accounting data, entity-level adjustments, deferred-tax information, and elections that must be made and evidenced on time. Many of these inputs live outside the tax team — in consolidation systems, local ledgers, and HR or asset records — so the same ownership discipline that governs country-by-country reporting applies here: every figure needs a source, an owner, a period, and a reviewer. Safe harbours reduce the calculation burden, but they are elections with conditions; claiming transitional relief on the strength of a flawed CbCR report moves the error rather than removing it. Finally, the output is documentation: the GloBE information return, local top-up tax filings, and the working papers that reconcile accounting profit to GloBE income. Software can organise that evidence and prepare the review queue, but jurisdiction-specific positions still belong with qualified tax advisers.
- Scope
- Collect
- Compute
- Review
- File and retain