Pillar Two Explained: The 15% Global Minimum Top-Up Tax (2026)

Pillar Two is the OECD/G20 Inclusive Framework’s answer to the race-to-the-bottom: a global minimum tax of 15% on the profits of the largest multinational groups. Where a group’s profit in a jurisdiction is effectively taxed below 15%, the difference — the top-up tax — is charged, by the mechanism that applies, in the parent jurisdiction, in the source jurisdictions, or in the jurisdiction itself. It is, structurally, a tax on effective tax rates — and that is what makes it a transfer pricing problem as much as a tax law problem: the top-up tax runs on the jurisdictional effective tax rate, and the jurisdictional effective tax rate is what the transfer pricing determines.

Why Pillar Two

The problem it addresses: the large groups’ ability to locate profit in low-tax jurisdictions (the IP holding, the finance entity, the loss jurisdiction, the 0–5% rate jurisdiction) such that the effective tax on the group’s profit is far below the statutory rates of the jurisdictions where the economic activity happens. Pillar Two does not tax the profit where the activity is (that is Pillar One — the reallocation of a share of the residual profit of the very largest groups to the market jurisdictions, still in its implementation phase as of 2026). Pillar Two does the other job: whatever the profit is located in, it is taxed at no less than 15% in the aggregate — the floor.

The scope

Element	The content
The groups in scope	The MNE groups with consolidated revenue of €750 million or more (in at least one of the two preceding financial years) — the same threshold family as the CbCR and the Master File, and the reason the three data sets are built on the same group
The undertakings	The group’s constituent entities (and the permanent establishments) in every jurisdiction — the jurisdictional computations run per jurisdiction, across the group
The exclusions	The small-undertaking exclusion (the jurisdiction’s undertakings below the de minimis profit/revenue — the jurisdictions whose profits are small carry no top-up), the publicly-owned entities (the government-owned entities, with conditions), the investment funds (with the special computation), the real estate investment trusts (with conditions) — the scope’s edges, per the model rules

The group that is in scope for Pillar Two is, almost by definition, in scope for the CbCR and the Master File — the three obligations share the group, and the data they need is the same data (the jurisdictional revenue, profit, tax, employees, assets), which is the CbCR and Pillar Two story.

The mechanics at a glance

The computation, in one line: for each jurisdiction, the jurisdictional effective tax rate (ETR) = covered taxes ÷ adjusted covered income (ACI); where the ETR is below 15%, the top-up tax = (15% − ETR) × (ACI − the substance-based income exclusion) — the SBIE, the carve-out for the payroll and the tangible assets that give the jurisdiction its substance. The full computation — the ACI’s adjustments, the covered taxes, the SBIE’s numbers, the worked example — is in the GloBE rules guide.

The top-up tax is then charged by one of three mechanisms, in priority order:

1. The IIR (the Income Inclusion Rule) — the parent jurisdiction charges the top-up on the sub-15% foreign jurisdictions’ profits (the ultimate parent’s jurisdiction including the low-tax jurisdiction’s top-up in its own tax base).
2. The UTPR (the Undeducted Profits Tax Rule) — where the IIR does not reach it (the jurisdiction is not under the parent’s IIR), the source jurisdictions (the jurisdictions with the undertaking’s other undertakings) charge the top-up, as a backstop.
3. The QDMTT (the Qualified Domestic Minimum Top-up Tax) — the jurisdiction itself levies its own 15% top-up on its own undertakings (the low-tax jurisdiction taking the top-up home, before the IIR/UTPR reach it).

The mechanics — what each rule computes, when each applies, the worked allocation — are in the IIR, UTPR and QDMTT guide.

Who is affected — and how it lands

The profile	The exposure
The group with the 0–5% jurisdiction profit (the IP holding in the low-tax jurisdiction, the finance entity, the loss carryforward jurisdiction)	The classic exposure: the sub-15% ETR jurisdiction, the top-up on the difference — the IIR (the parent’s jurisdiction) or the QDMTT (the jurisdiction itself, where it has enacted one)
The group with the loss jurisdictions (the startup jurisdiction, the restructuring jurisdiction)	The loss year’s ETR is the loss — the top-up on the profit in the other jurisdictions’ computation, with the loss treatment (the loss carryforward’s effect on the ACI and the covered taxes) as the examined detail
The group with the preferential-regime profit (the free-zone regime, the special economic zone, the incentive regime)	The preferential regime’s effective rate — where the regime’s rate is below 15%, the top-up applies to the regime profit (the safe-harbour regimes’ carve-outs, where the model rules provide them, as the relief)
The group with the India footprint	The Indian corporate tax rate (25% plus surcharge and cess) sits above the 15% floor in the ordinary case — the Indian jurisdiction’s ETR is not the top-up driver; the exposure is the group’s other jurisdictions (the low-tax holding, the 0/9% UAE profit, the loss jurisdiction), with the Indian entity’s CbCR row as the data input. India has not enacted the GloBE rules as of this writing — the position is the one to confirm against the current budget and the group’s own jurisdictions’ enactments, which is the India status below

The ETR, and why the TP team owns it

The jurisdictional ETR is the ratio the top-up tax runs on — and its numerator and denominator are the tax computation and the financial computation of the jurisdiction, shaped by the transfer pricing:

• The numerator (the covered taxes) — the income taxes paid or payable in the jurisdiction, the current taxes and the deferred taxes (with the specified adjustments) — the tax position the TP determines (the adjusted profit, the deductible costs, the credits).
• The denominator (the ACI) — the financial statement income, with the GloBE adjustments (the removal of the tax expense, the specified adjustments) — the profit position the TP determines (the intercompany margins, the allocation of the profit across the entities).

Move the intercompany price, and the jurisdictional ETR moves — in both numerator and denominator, in both jurisdictions of the transaction. The Pillar Two for TP teams guide is the working map of that interaction; the ETR and SBIE guide is the computation’s detail. The through-line for the reader: Pillar Two does not change the arm’s length standard — the transfer pricing is still the arm’s length pricing, the GloBE computation is a separate layer on top — but it changes what the tax consequence of the pricing is, and the pricing decisions that were neutral (the profit location within the arm’s length range) are no longer neutral, because the top-up tax prices the location.

India: the status

• The domestic rate — the Indian corporate tax (25% for the ordinary company under the current regime, plus surcharge and the 4% cess) is above the 15% floor: the Indian jurisdiction’s ETR, on the ordinary computation, does not generate the top-up.
• The enactment — India has not enacted the GloBE rules (the IIR, the UTPR, the QDMTT) as of this writing; the government’s position has been one of study and restraint, and the status should be confirmed against the current budget and the Inclusive Framework’s developments before the position is relied on.
• The group’s exposure — for the Indian group in scope, the exposure is the group’s other jurisdictions: the low-tax holding, the 0%/9% UAE profit (the UAE’s corporate tax position and its Pillar Two enactment), the loss jurisdictions — the top-up charged by the parent’s IIR (where the parent’s jurisdiction has enacted) or the QDMTT (where the low-tax jurisdiction has enacted its own top-up). The Indian entity’s role is the data: the CbCR row, the jurisdictional computation input, the CbCR-and-Pillar-Two discipline.

The timeline

The Pillar Two timeline, as the major jurisdictions have enacted: the in-scope groups’ first GloBE year is the financial year beginning on or after 31 December 2023 (the FY2024 computation, for most) — the IIR and the QDMTT from the first year in the enacting jurisdictions, the UTPR from the following year (the FY2025 computation), the transitional CbCR safe harbour covering the first three years (the FY2024–FY2026 computations) as the fast path. The EU’s transposition (the EU Pillar Two Directive) set the member states’ schedule; the other jurisdictions enacted on their own cycles — the group’s position is the map of which jurisdiction has enacted what, from which year, and that map is the Pillar Two for TP teams working document.

See also

• GloBE rules — the computation
• IIR, UTPR and QDMTT
• ETR and SBIE
• CbCR and Pillar Two
• Pillar Two for TP teams