What is BEPS Pillar 2?

The problem Pillar 2 was designed to solve

For decades, multinational enterprises have been able to structure their operations so that profits are reported in jurisdictions with very low or zero corporate tax rates, even when the underlying economic activity takes place elsewhere. This practice, broadly known as base erosion and profit shifting (BEPS), has cost governments hundreds of billions in lost revenue each year and created a perceived unfairness in the international tax system.

Traditional responses (bilateral tax treaties, transfer pricing rules, controlled foreign corporation regimes) addressed parts of the problem, but they were piecemeal. Each country set its own rules, and aggressive tax planning exploited the gaps between them. The result was a race to the bottom, with countries competing on headline rates to attract mobile capital, and a growing disconnect between where profits were taxed and where value was actually created.

The OECD/G20 Inclusive Framework

In 2013, the OECD and G20 launched the original BEPS project, a 15-point action plan to address the most egregious forms of profit shifting. That project delivered important reforms (notably Country-by-Country Reporting under Action 13), but it did not directly tackle the core issue: the absence of a floor on corporate taxation.

By 2019, it was clear that a more structural solution was needed. The OECD/G20 Inclusive Framework on BEPS, a group that has grown to include over 140 countries and jurisdictions, agreed to pursue a two-pillar approach:

• Pillar 1 addresses the allocation of taxing rights. It aims to reallocate a portion of the profits of the largest and most profitable multinational enterprises to the market jurisdictions where their customers are located, regardless of physical presence. Pillar 1 is primarily concerned with digital economy taxation and has a separate set of rules (Amount A and Amount B).
• Pillar 2 introduces a global minimum effective tax rate of 15% on the profits of large multinational groups. Its purpose is to ensure that, wherever a group operates, its income is subject to at least a minimum level of taxation, thereby removing the incentive for profit shifting to very low-tax jurisdictions and ending the race to the bottom.

This guide focuses exclusively on Pillar 2.

The Global Anti-Base Erosion (GloBE) rules

Pillar 2 is implemented through a framework known as the Global Anti-Base Erosion (GloBE) rules. The OECD published the GloBE Model Rules in December 2021, followed by detailed Commentary in March 2022, and Administrative Guidance that continues to evolve.

The core concept is straightforward: for every jurisdiction in which an in-scope MNE group operates, an effective tax rate (ETR) is calculated. If that ETR falls below 15%, a top-up tax is imposed to bring the effective rate up to the minimum. The complexity lies in how the ETR is calculated and how the resulting top-up tax is collected.

The GloBE rules consist of several interlocking components:

• Income Inclusion Rule (IIR): The primary rule. It requires a parent entity to include its share of the top-up tax for any low-taxed constituent entity in its own tax liability. The IIR operates top-down through the ownership chain.
• Undertaxed Profits Rule (UTPR): A backstop mechanism. Where the IIR does not fully capture the top-up tax (for example, because the ultimate parent is in a jurisdiction that has not adopted the rules), the UTPR allocates the remaining top-up tax to other group entities.
• Qualified Domestic Minimum Top-up Tax (QDMTT): A domestic mechanism that allows a jurisdiction to collect the top-up tax itself, before the IIR or UTPR apply. Many countries have introduced or plan to introduce a QDMTT to ensure the revenue stays locally rather than flowing to a parent jurisdiction.

Why 15%?

The 15% rate was the product of extensive political negotiation. It represents a compromise: high enough to meaningfully deter profit shifting and end the race to the bottom, but low enough to secure agreement from jurisdictions with competitive tax rates (such as Ireland, which had a 12.5% headline rate, and several Eastern European and Asian economies).

Importantly, the 15% floor applies to the effective tax rate, not the statutory rate. A country can maintain a headline rate of 10% and still avoid triggering top-up tax for groups operating there, provided that incentives, exemptions, and timing differences do not push the effective rate below 15%. Conversely, a country with a statutory rate well above 15% could still generate a low ETR for a specific group if significant tax incentives are in play.

Which countries have adopted Pillar 2?

As of early 2026, the pace of adoption has been significant, though uneven:

The relationship between Pillar 2 and existing tax rules

The GloBE rules sit on top of existing domestic and treaty-based tax rules. They do not replace any country's corporate income tax; they supplement it. A group must still comply with all local tax obligations in every jurisdiction. Pillar 2 adds an additional layer of computation, effectively a second set of books, that determines whether a jurisdictional top-up tax applies.

Some existing regimes interact with Pillar 2 in important ways:

• Controlled Foreign Corporation (CFC) rules: Taxes imposed under CFC regimes can, in some cases, be allocated as covered taxes to the jurisdiction of the CFC, which helps increase the ETR and potentially eliminate or reduce top-up tax.
• GILTI (US): The US Global Intangible Low-Taxed Income regime has a similar conceptual structure to the IIR but differs in many technical details (entity-by-entity vs. blended calculation, different base, different rate). GILTI is not a qualified IIR under the GloBE rules.
• Tax incentives and holidays: Many countries offer reduced rates, tax credits, or exemptions to attract investment. Under the GloBE rules, these incentives can push the jurisdictional ETR below 15%, potentially triggering top-up tax and undermining the intended benefit.

Timeline and key milestones

The development and implementation of Pillar 2 has followed a rapid timeline:

• October 2021: 137 members of the Inclusive Framework agreed to the two-pillar solution, including the 15% minimum rate.
• December 2021: OECD published the GloBE Model Rules.
• March 2022: Commentary on the Model Rules released.
• December 2022: EU adopted the Minimum Tax Directive.
• July 2023: Administrative Guidance covering safe harbours and transitional rules published.
• 2023-2024: Domestic enactments across the EU, UK, and other early adopters.
• 2025-2026: First fiscal years to which the rules apply for most groups; first GloBE Information Returns due.

What this means for multinational tax teams

For groups that are in scope, the practical implications are substantial:

• New data requirements: The GloBE rules require financial and tax data at a level of granularity that many groups have never needed to collect centrally: entity-level financial accounting income, detailed tax provision data, payroll costs, and tangible asset values for every jurisdiction.
• Additional calculations: Computing the jurisdictional ETR requires a series of adjustments to both income and taxes that go well beyond a standard tax provision. Each adjustment has specific rules, exceptions, and elections that must be tracked.
• New filing obligations: The GloBE Information Return (GIR) is a substantial document that must be filed in the UPE's jurisdiction and shared with other relevant tax authorities. It requires detailed disclosure of the group's structure, calculations, and top-up tax allocation.
• Strategic considerations: Groups need to assess how Pillar 2 interacts with existing tax positions, incentive arrangements, and group structures. Some restructuring may be warranted; many elections within the GloBE rules require careful analysis.

The remainder of this guide walks through each of these topics in detail, starting with the question of which groups are in scope.