Global Minimum Tax Reaches 60 Countries as OECD Pillar Two Expands

Pillar Two rules now active across EU, UK, and major Asian economies. Holdouts face undertaxed profits rules.

The OECD's global minimum tax framework reached a significant milestone in early 2026, with over 60 jurisdictions now implementing Pillar Two rules. The 15% minimum effective tax rate applies to multinational enterprises with consolidated revenues above EUR 750 million, fundamentally changing international tax planning for large groups.

Where the rules are active

The OECD Pillar Two framework includes three interlocking rules: the Income Inclusion Rule (IIR), the Undertaxed Profits Rule (UTPR), and the Qualified Domestic Minimum Top-up Tax (QDMTT). Implementation varies by jurisdiction:

The European Union implemented the directive across all 27 member states by December 2024. The IIR applied from January 2024, with UTPR following from January 2025.

The United Kingdom implemented its own version effective from April 2024 for accounting periods beginning on or after that date, with UTPR from April 2025.

Japan, South Korea, and Australia have all enacted implementing legislation, with rules phasing in between 2024 and 2026.

Switzerland held a referendum approving the QDMTT in 2024, preserving the right to collect top-up taxes domestically rather than ceding them to other jurisdictions.

The US situation

The United States has not enacted Pillar Two legislation. The existing GILTI rules (Global Intangible Low-Taxed Income) have a lower effective rate and different calculation methodology than Pillar Two requires.

This creates a practical problem. Countries implementing the UTPR can impose top-up taxes on US-parented groups when US subsidiaries are deemed undertaxed. US multinationals with European operations are already seeing increased tax bills in EU jurisdictions.

The US Treasury has objected, arguing the UTPR violates tax treaties. Several European countries have delayed applying UTPR specifically to US groups while negotiations continue. But the grace period won't last indefinitely.

What this means for tax planning

Traditional structures using low-tax jurisdictions face top-up taxes under Pillar Two. A subsidiary in a 0% or 5% tax jurisdiction will trigger IIR or UTPR charges that bring the effective rate to 15%.

However, the rules contain significant carve-outs:

• Substance-based carve-out: Payroll costs and tangible asset values can reduce the top-up tax base, preserving benefits for genuine operational presence
• De minimis exclusions: Jurisdictions with revenues under EUR 10 million and profits under EUR 1 million are excluded
• Transitional rules: Safe harbors based on Country-by-Country reporting data reduce compliance burden through 2026

For groups below the EUR 750 million threshold, Pillar Two doesn't apply directly. But many jurisdictions are using the framework to justify tightening domestic anti-avoidance rules for smaller companies.

The jurisdictions adapting

Several traditionally low-tax jurisdictions have introduced QDMTTs to capture top-up taxes domestically:

• Ireland introduced a 15% QDMTT while keeping its 12.5% standard rate for most companies
• Hong Kong implemented a 15% minimum tax for in-scope multinationals
• UAE has indicated it will introduce Pillar Two rules, though timing remains uncertain
• Singapore enacted a 15% minimum tax effective 2025

These jurisdictions have calculated that collecting the top-up tax themselves is better than letting parent countries claim it through IIR.

The OECD continues publishing implementation guidance, with the Inclusive Framework meeting quarterly to address technical issues.