BEPS Pillar Two Global Minimum Tax: What Corporate Groups Need to Know

BEPS and the Road to Pillar Two

The OECD's Base Erosion and Profit Shifting (BEPS) project, launched in 2013 in response to G20 concerns about profit shifting by multinational corporations, produced 15 Action Plans. Actions 1 through 15 addressed issues from digital economy taxation (Action 1) to dispute resolution (Action 14), but the most transformative outcome was the Two-Pillar solution announced in October 2021 and formally agreed by 138 jurisdictions in the OECD Inclusive Framework.

Pillar One addresses the reallocation of taxing rights over large MNEs to market jurisdictions. Pillar Two — the subject of this article — introduces a global minimum corporate tax rate of 15%, implemented through the GloBE (Global Anti-Base Erosion) rules.

The GloBE rules were formalised in the OECD's Model Rules published in December 2021, accompanied by Commentary (March 2022), Administrative Guidance (multiple releases from 2022-2025), and the GloBE Information Return framework.

The €750 Million Threshold

Pillar Two applies only to MNE groups with annual consolidated group revenue of at least €750 million in at least two of the four fiscal years preceding the year in question. This threshold is identical to the Country-by-Country Reporting (CbCR) threshold under BEPS Action 13.

Groups below the €750 million threshold are entirely outside the GloBE rules — they can structure their operations in low-tax jurisdictions without triggering Pillar Two top-up tax obligations. This is a critical point for mid-sized groups: a family-owned group with €500 million of annual revenue is not affected by Pillar Two regardless of how many zero-tax entities it uses.

For groups that exceed the threshold, even intermittently, the rules apply in full.

How the 15% GloBE Rate Works

The GloBE rules calculate the effective tax rate (ETR) for each jurisdiction in which the MNE group has constituent entities. If the ETR in any jurisdiction is below 15%, a "top-up tax" is imposed to bring the effective rate to 15%. The ETR is calculated as the aggregate adjusted covered taxes divided by the aggregate GloBE income of all constituent entities in that jurisdiction.

The key concepts:

• Covered taxes: Corporation taxes, withholding taxes, and CFC taxes paid by constituent entities
• GloBE income: Accounting profit adjusted for specific items (equity method income, excluded dividends, etc.)
• Substance Based Income Exclusion (SBIE): A carve-out for genuine substance — payroll costs and tangible assets in each jurisdiction generate a deduction from GloBE income before the ETR is calculated

The Substance Based Income Exclusion

The SBIE is one of the most important provisions for groups with genuine offshore operations. For each jurisdiction, the excluded income amount is:

• 5% of the book value of tangible assets in that jurisdiction (reducing to 5% from a 7.8% transitional rate after 2032)
• 5% of the payroll costs of employees working in that jurisdiction (reducing to 5% from a 9.8% transitional rate after 2032)

Income below the SBIE threshold is not subject to GloBE top-up tax, even if the ETR is below 15%. This means that a genuine manufacturing or services operation in a low-tax jurisdiction, with real employees and real physical assets, has a portion of its income permanently sheltered from Pillar Two.

SBIE Component	2024-2025 Rate	2026-2032 Rate	Post-2032 Rate
Tangible assets	8.0%	7.8% (stepping down)	5.0%
Payroll costs	10.0%	9.8% (stepping down)	5.0%

The Income Inclusion Rule and UTPR

The GloBE rules operate through two primary charging mechanisms:

Income Inclusion Rule (IIR): The parent entity of the group charges itself top-up tax in respect of low-taxed income in subsidiaries. The IIR is applied at the level of the ultimate parent entity (UPE) or, in certain cases, intermediate parent entities.

Under-taxed Profits Rule (UTPR): Where the IIR does not fully capture a top-up tax obligation — typically because the UPE is in a non-implementing jurisdiction — the UTPR allows other jurisdictions in the group to impose a top-up charge allocated among them. The UTPR acts as a backstop to the IIR.

Qualified Domestic Minimum Top-up Tax (QDMTT): Many jurisdictions have introduced their own domestic minimum tax calibrated to the GloBE rules. A jurisdiction with a QDMTT collects the top-up tax domestically before the IIR or UTPR can apply. This preserves the taxing right in the source jurisdiction.

Jurisdictions That Have Enacted Pillar Two

As of early 2026, the following major jurisdictions have enacted GloBE-compliant Pillar Two legislation:

• European Union (all 27 member states, via Directive 2022/2523 transposed by December 2023)
• United Kingdom (Finance (No.2) Act 2023, effective from 31 December 2023)
• Japan (effective from fiscal years ending on or after 31 March 2024)
• South Korea (effective from fiscal years beginning after 31 December 2023)
• Australia (Royal Assent December 2024)
• Canada (Bill C-59, enacted 2024)
• Singapore (effective from fiscal year 2025)
• Switzerland (QDMTT only, effective 2024)

Jurisdictions That Have Not Enacted Pillar Two

The following jurisdictions have not enacted GloBE rules and have not committed to implementation timelines as of early 2026:

• United Arab Emirates (corporate tax rate of 9% applies to profits above AED 375,000, but no Pillar Two enacted)
• Cayman Islands (no corporate income tax; not implementing Pillar Two)
• British Virgin Islands (no corporate income tax; not implementing Pillar Two)
• Bermuda (introduced 15% corporate income tax in January 2025 as a QDMTT substitute)
• United States (UTPR enacted but challenged; IIR not implemented as of 2026)

For groups with ultimate parent entities in implementing jurisdictions, the absence of Pillar Two in low-tax subsidiaries' home countries does not provide shelter — the IIR at the parent level collects the top-up tax regardless.

Impact on Offshore Holding Company Planning

The practical impact on offshore holding company structures depends on whether the group exceeds the €750 million revenue threshold. For sub-threshold groups, the planning landscape is unchanged. For in-scope groups:

1. Pure holding companies with minimal substance: A holding company in the Cayman Islands with no payroll and no tangible assets has no SBIE. All its income is subject to the 15% GloBE rate. The top-up tax will be collected via the parent's IIR.

2. IP holding structures in low-tax jurisdictions: An IP holding company in a low-tax jurisdiction benefits from the SBIE to the extent it has genuine R&D employees and tangible assets. The portion of IP income exceeding the SBIE will be subject to top-up tax if the ETR is below 15%.

3. Treasury and financing entities: Passive income from intragroup financing in low-tax jurisdictions (interest income) is GloBE income with minimal SBIE offset. These structures are heavily impacted by Pillar Two.

HPT Group advises corporate clients on Pillar Two impact assessments, restructuring of in-scope offshore operations, and the identification of SBIE-eligible activities that can reduce the effective Pillar Two exposure. For groups approaching the €750 million threshold, proactive modelling of the Pillar Two position before threshold crossing is an essential planning step. Contact our corporate advisory team for a Pillar Two readiness assessment.