Pillar Two sets a minimum tax of 15% on the profits of big multinational groups, country by country. It applies to groups with revenue of €750 million or more. It is collected first by a domestic minimum tax, then by the parent’s country, and then by other countries. As of October 4, 2026, it is law in the EU and many other places, but the January 2026 side-by-side package exempts US-parented groups from two of the three collection rules.
Why it matters: The global minimum is real, but not every group is covered equally.
Summary: Pillar Two sets a 15% minimum effective tax rate, jurisdiction by jurisdiction, for groups with revenue of €750 million or more, collected first by a domestic minimum tax, then by the parent’s country, then by other countries. As of October 4, 2026, it is law in the EU and many other jurisdictions, but the January 2026 side-by-side package exempts US-parented groups from two of the three collection rules.
- The top-up applies only to profit above a carve-out for payroll and tangible assets (9.4% and 7.4% in 2026, falling to 5%).
- In the worked example a 9% jurisdiction owes a $5,665,200 top-up for 2026.
- The US declared the deal of no effect in January 2025; the G7 agreed the side-by-side approach in June 2025.
- QDMTTs still apply to US-parented groups, so their foreign subsidiaries can still pay 15% locally.
- The September 11, 2026, package added legislative peer reviews and an updated information return; a stocktake is due by 2029.
In October 2021, 136 jurisdictions in the Inclusive Framework agreed to a two-pillar framework whose second pillar, Pillar Two, sets a global minimum corporate tax rate of 15% for large multinationals: groups with consolidated revenue of at least €750 million in at least two of the four preceding fiscal years. If a multinational’s effective tax rate in any one jurisdiction, computed under the common GloBE (“Global Anti-Base Erosion”) rules the OECD published in December 2021, falls below 15%, a “top-up tax” brings that jurisdiction’s rate up to 15%. Three rules decide who collects it, in order. First, the low-tax country itself can collect it through a qualified domestic minimum top-up tax (QDMTT). If it does not, the parent company’s country collects it under the income inclusion rule (IIR). As a backstop, other countries where the group operates collect it under the undertaxed profits rule (UTPR), typically by denying deductions. The test is jurisdiction by jurisdiction, not on the group’s overall rate, so high-tax operations elsewhere cannot average away a low-tax one. The design removes much of the incentive for the profit-shifting that BEPS targeted, and gives low-tax countries a reason to raise their own rate to 15%, since otherwise another country collects the difference.
Pillar Two was a historic shift in international tax cooperation — for the first time, a large coalition of countries agreed to collectively limit the “race to the bottom” in corporate tax competition between jurisdictions, an outcome many observers considered politically implausible for decades given how directly it constrains individual countries’ own sovereign tax policy choices. Its reach is now narrower than agreed in 2021, as the status below shows.
Pillar Two taxes only “excess” profit. Before applying the rate gap, it deducts a substance-based income exclusion: a percentage of payroll costs plus a percentage of the carrying value of tangible assets in the jurisdiction. The long-run rates are 5% and 5%; transitional rates started at 10% and 8% in 2023 and, for fiscal years beginning in 2026, are 9.4% of payroll and 7.4% of tangible assets, reaching 5% from 2033. Real people and real plant therefore shrink the top-up; paper profit does not.
A group’s subsidiaries in one jurisdiction earn $100 million of GloBE income in 2026 and pay $9 million of covered taxes, with $20 million of payroll and $50 million of tangible assets.
- Effective rate: $9,000,000 ÷ $100,000,000 = 9%. Top-up percentage: 15% − 9% = 6%.
- Exclusion: 9.4% × $20,000,000 + 7.4% × $50,000,000 = $1,880,000 + $3,700,000 = $5,580,000.
- Excess profit: $100,000,000 − $5,580,000 = $94,420,000.
- Top-up tax: 6% × $94,420,000 = $5,665,200.
At the permanent 5% rates the exclusion falls to $3,500,000 and the top-up rises to 6% × $96,500,000 = $5,790,000. At a 13% effective rate the 2026 top-up would be 2% × $94,420,000 = $1,888,400. The top-up depends on the rate gap and on how much profit exceeds the substance carve-out, which is why a QDMTT at home is usually the better outcome for the low-tax country: it keeps the revenue rather than ceding it to the parent’s country.
Status as of October 4, 2026. Pillar Two is law in the European Union (Council Directive 2022/2523: the IIR from December 31, 2023, and the UTPR from December 31, 2024) and in many other jurisdictions, but the United States has not adopted it, and US-parented groups have been carved out of two of its three rules. The sequence:
- January 20, 2025: a presidential memorandum declared that the OECD Global Tax Deal “has no force or effect in the United States” absent an act of Congress.
- June 28, 2025: the G7 endorsed a “side-by-side” system that would fully exclude US-parented groups from the IIR and UTPR for both domestic and foreign profits, after the US dropped the proposed retaliatory tax (Section 899) from its budget bill.
- July 4, 2025: the One Big Beautiful Bill Act became law without Section 899, raising the effective rate on US groups’ foreign CFC income to 12.6% from 2026.
- January 5, 2026: the OECD/G20 Inclusive Framework approved the Side-by-Side Package: a Side-by-Side Safe Harbor switching off the IIR and UTPR for groups headquartered in a jurisdiction with a qualified regime (the US was the first so recognized), for fiscal years beginning on or after January 1, 2026; a UPE Safe Harbor; a permanent simplified effective-tax-rate safe harbor; a one-year extension of the transitional CbCR safe harbor; and a safe harbor for substance-based tax incentives. QDMTTs continue to apply to every group, US-parented ones included, and an evidence-based stocktake of the rules’ effects is to be completed by 2029.
- June 30, 2026: first GloBE Information Returns (for calendar-2024 fiscal years) fell due in many implementing jurisdictions; some, such as France, extended the date.
- July–September 2026: implementing countries began writing the side-by-side package into national law: the UK published draft legislation in July, Luxembourg a draft law on July 24, and the Netherlands a bill on September 17.
- September 11, 2026: the Inclusive Framework released a framework for full legislative peer reviews of national IIR, UTPR and QDMTT laws; an updated GloBE Information Return that incorporates the side-by-side system, for fiscal years beginning on or after December 31, 2025; and administrative guidance excluding “explicitly conditional” taxes (taxes triggered only by another country’s IIR or UTPR) from covered taxes.
The practical result for a US-parented group in 2026: no IIR or UTPR exposure if it elects the safe harbor, but full exposure to QDMTTs wherever it operates in a jurisdiction that has one, plus a full GloBE-style computation for those jurisdictions.
Work out Pillar Two exposure jurisdiction by jurisdiction, in this order.
- Scope: if consolidated revenue was below €750 million in at least three of the four preceding fiscal years, the group is out of scope.
- Safe harbors first: test each jurisdiction against the transitional CbCR safe harbor (available for fiscal years beginning on or before December 31, 2027) and, from 2027, the simplified effective-tax-rate safe harbor; a jurisdiction that passes needs no full computation.
- Rate: where the GloBE effective rate is 15% or more, no top-up arises; where it is lower, compute the top-up after the substance-based exclusion.
- Collector: assume the QDMTT country collects first. For a US-parented group electing the side-by-side safe harbor, a jurisdiction without a QDMTT means no top-up in 2026; for other groups, the parent’s IIR or the UTPR picks it up.
When to look again: whenever a country enacts or changes a QDMTT, or the Central Record of qualified regimes changes, since either can move the collector or the amount.
Reading the side-by-side deal as “Pillar Two no longer applies to US companies.” The safe harbor switches off the IIR and UTPR only. A US-parented group with the 9% jurisdiction in the example above still owes that country’s QDMTT, if it has one: $5,665,200 for 2026, plus the cost of the full calculation and the GloBE Information Return filing. A group that stopped collecting Pillar Two data in 2025 on the strength of the headlines discovers the liability when local returns fall due, too late to restructure for that year.
Does the global minimum tax apply to US companies?
Partly. Since January 2026, US-parented groups can elect a side-by-side safe harbor that removes them from the income inclusion rule and the undertaxed profits rule. They remain subject to qualified domestic minimum top-up taxes in every country that has enacted one, so their foreign subsidiaries can still pay 15% locally.
Is the global minimum tax dead?
No. It is in force in the European Union and many other jurisdictions, groups filed their first GloBE information returns in 2026, and the OECD issued further guidance in September 2026. What changed is its reach over US-parented groups, which the January 2026 package carved out of two of the three collection rules, subject to a review by 2029.
What is a QDMTT?
A qualified domestic minimum top-up tax is a country’s own tax that raises the effective rate of in-scope groups’ local profits to 15%, computed under the common rules. Because it collects first, it lets a low-tax country keep the top-up revenue rather than leaving it to the parent’s country or to others under the backstop rules.
Pillar Two imposes a 15% minimum effective rate, jurisdiction by jurisdiction, on profit above a payroll-and-assets carve-out, collected first by the low-tax country’s own QDMTT. As of October 4, 2026, US-parented groups are outside the IIR and UTPR under the side-by-side package but remain fully exposed to QDMTTs.
Six questions on this chapter. Decide on your answer first, then click “Reveal Answer.”
1. In 2026 a jurisdiction shows $50 million of GloBE income, $5 million of covered taxes, $10 million of payroll and $30 million of tangible assets. Using the 2026 carve-out rates of 9.4% (payroll) and 7.4% (assets), what is the top-up tax?
- $2,500,000
- $2,342,000
- $2,400,000
- $4,684,000
Reveal Answer
Answer: B. ETR 10%, so top-up 5%. Exclusion = 9.4% × $10m + 7.4% × $30m = $3.16m; excess = $46.84m; top-up = 5% × $46.84m = $2,342,000.
2. Under the GloBE rules, which charge collects a low-taxed jurisdiction’s top-up first?
- That jurisdiction’s own domestic minimum top-up tax
- The parent company’s country, under its CFC rules
- The parent company’s country, under the income inclusion rule
- Other countries in the group, under the undertaxed profits rule
Reveal Answer
Answer: A. The QDMTT ranks first; the IIR applies only if there is none, and the UTPR is the backstop.
3. A US-parented group elects the side-by-side safe harbor for 2026. One subsidiary sits in a country with an 8% GloBE effective rate and no QDMTT. Who collects a top-up?
- Other countries collect it under the undertaxed profits rule
- The subsidiary’s country collects it under its corporate tax
- The US collects it under the income inclusion rule
- No one collects a top-up for 2026
Reveal Answer
Answer: D. The safe harbor switches off the IIR and UTPR for US-parented groups; only a QDMTT could collect, and this country has none.
4. A group’s consolidated revenue in the four preceding fiscal years, oldest first, was €780 million, €760 million, €700 million and €720 million. Is it within Pillar Two’s scope?
- No, because the most recent year was below €750 million
- No, because three of the four years must reach €750 million
- Yes, because two of the four years reached €750 million
- No, because the four-year average is below €750 million
Reveal Answer
Answer: C. The test is €750 million in at least two of the four preceding years; the average (€740 million) and the latest year do not matter.
5. Worked problem: A jurisdiction has $120m of profit, a 9% effective rate, $400m of payroll and $300m of tangible assets. With carve-outs of 9.4% of payroll and 7.4% of tangible assets, what is the excess profit?
Reveal Answer
Answer: Carve-out = 37.6 + 22.2 = $59.8m. Excess profit = $120m − $59.8m = $60.2m.
6. Worked problem: What is the top-up tax at a 15% minimum?
Reveal Answer
Answer: Top-up rate = 15% − 9% = 6%. Top-up = 60.2 × 6% = $3.61 million.
- Council Directive (EU) 2022/2523 on a global minimum level of taxation — EU IIR and UTPR effective dates
- Presidential Memorandum on the OECD Global Tax Deal, January 20, 2025 (Federal Register) — US rejection of the Global Tax Deal
- OECD Side-by-Side Package (January 5, 2026)