What is Pillar 2?

Pillar Two is one half of the Two-Pillar Solution from the OECD/G20 Inclusive Framework on BEPS (base erosion and profit shifting). The Two-Pillar Solution addresses the tax challenges that come from the digitalization of the economy [1]. The Inclusive Framework is the group of over 145 countries and jurisdictions that work together on these rules at the OECD [4]. In October 2021, over 135 jurisdictions agreed to update the international tax system, which was “no longer fit for purpose in a globalised and digitalised economy” [1].

The core of Pillar Two is the Global Anti-Base Erosion (GloBE) Rules. They make sure large multinational groups pay a minimum level of tax on the income they earn in each jurisdiction where they operate [1]. The goal is to reduce the incentive to shift profits and to put a floor under tax competition [2].

Who is in scope of Pillar Two?

In the EU, Pillar Two applies to groups with annual consolidated revenue of €750 million or more in at least two of the four fiscal years before the tested year [3].

Some entities are excluded [3]:

• government entities
• international organizations
• non-profit organizations
• pension funds
• investment funds and real estate investment vehicles that are the ultimate parent entity (UPE), meaning the company at the top of the group
• certain entities that are 95% or 85% owned by these excluded entities

How does Pillar Two work?

In-scope groups calculate their income, and the taxes on that income, jurisdiction by jurisdiction [2].

If the effective tax rate (ETR) in a jurisdiction is below 15%, the group pays a top-up tax that brings it up to 15% [2]. EU law sets the same 15% minimum rate [3].

The top-up tax applies to excess profit. Excess profit is GloBE income minus a substance-based income exclusion, which is based on a percentage of payroll costs and the value of tangible assets in that jurisdiction [2][3].

Which rules collect the Pillar Two top-up tax?

The rules apply in a fixed order [2][3]:

1. QDMTT (Qualified Domestic Minimum Top-up Tax). The low-taxed jurisdiction itself has the first right to collect the top-up tax.
2. IIR (Income Inclusion Rule). If there is no QDMTT, the jurisdiction of the ultimate parent entity collects the top-up tax. If that jurisdiction has no qualified IIR, the next parent entity down the ownership chain that does have one collects it. Special rules apply to partially-owned parent entities.
3. UTPR (Undertaxed Profits Rule). If no IIR applies, the jurisdictions that have a UTPR collect the top-up tax. It is shared between them based on the number of employees and the value of tangible assets in each jurisdiction.

When does Pillar Two apply?

• EU transposition. EU member states had to bring the directive into national law by 31 December 2023 [3].
• Start dates:
  • The IIR applies to fiscal years beginning on or after 31 December 2023, so from 2024.
  • The UTPR applies to fiscal years beginning on or after 31 December 2024, so in practice from 2025 [3].
• Outside the EU. Each country brings the rules into its own national law, following a common approach [1].
• Reporting. Groups report their calculations in a standardized GloBE Information Return (GIR). For calendar-year groups, the first GIR, for the 2024 fiscal year, was due by 30 June 2026 [8].
  

Pillar Two timeline

Recent developments

• 5 January 2026: side-by-side package. Over 145 countries and jurisdictions agreed on the package [4]. Its main parts are [4] ⚑:
  • a simplified ETR safe harbor
  • a one-year extension of the transitional CbCR safe harbor. CbCR (country-by-country reporting) is the existing OECD report that shows a group’s revenue, profit and tax by country.
  • a safe harbor for substance-based tax incentives
  • a side-by-side system for groups headquartered in jurisdictions with an eligible tax regime. QDMTTs remain a primary mechanism.
  • an evidence-based stocktake to keep a level playing field for all Inclusive Framework members
• 12 January 2026: EU confirmation. The European Commission published a notice on how the package fits with the EU Pillar Two Directive [5]. According to KPMG, the safe harbors apply in the EU through Article 32 of the directive, without amending it [6]. Subject to national implementation [6]:
  • most of the safe harbors apply to fiscal years beginning on or after 1 January 2026
  • the simplified ETR safe harbor applies to fiscal years beginning on or after 31 December 2025
• 30 April 2026: implementation toolkit. The OECD published the Global Minimum Tax Implementation Toolkit, a guide in five modules for tax administrations and policy makers [9].
• 18 May 2026: central filing of the GIR. 33 of the 38 jurisdictions that implemented the rules in 2024 published a common understanding on how they will support central filing and exchange of the GIR for the 2024 fiscal year [8]. New Administrative Guidance also explains how the transitional UTPR safe harbor applies to groups with 52 to 53 week fiscal years [8].
• 28 May 2026: Consolidated Commentary (2026). The OECD published an updated commentary on the GloBE Rules. It brings together all agreed Administrative Guidance from March 2022 through January 2026 [10].
• 11 September 2026: consistency package. The OECD released a framework for reviewing national Pillar Two legislation, an updated GIR, and new Administrative Guidance [7][11]. The updated GIR applies to fiscal years beginning on or after 31 December 2025 [11]. The guidance does two things [7]:
  • It defines Explicitly Conditional Taxes and confirms they are not Covered Taxes. Covered Taxes are the taxes that count when a group calculates its effective tax rate.
  • It explains how the QDMTT safe harbor works when an entity’s local financial accounts cover a different period from the group’s consolidated financial statements.

How Keeyns supports Pillar Two compliance

Keeyns is a tax management platform for multinational, multi-entity companies. Tax teams use it to track Pillar Two obligations, such as the GIR and local top-up tax returns, by entity and jurisdiction, with clear owners and deadlines.

Pillar Two adds a new layer of obligations across every jurisdiction you operate in. Knowing what’s due, where and when, is where control starts.

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