◈ InternationalTaxTools · OECD BEPS 2.0 · Pillar One & Two · 2026

BEPS & Pillar Two Explained

A comprehensive plain-language guide to Base Erosion and Profit Shifting, the global minimum tax, and what multinationals need to do right now. Updated for 2026.

Last updated: March 2026 · Data sourced from KPMG, PwC, IBFD

BEPS 2.0 and the Global Minimum Tax

In 2021, 140+ countries and jurisdictions agreed to implement BEPS 2.0, a landmark update to international tax rules designed to address profit shifting by multinational enterprises and ensure a global minimum tax. The cornerstone of BEPS 2.0 is Pillar Two: a global minimum tax rate of 15% on large multinational companies with revenues exceeding EUR 750 million.

Pillar Two requires countries to implement an Income Inclusion Rule (IIR) and an Undertaxed Profits Rule (UTPR). Under the IIR, a parent company must top up taxes on foreign subsidiary income if the subsidiary's effective tax rate falls below 15%. Under the UTPR, countries can claim a right to tax profits not covered by the IIR. This fundamentally changes transfer pricing strategy and low-tax jurisdiction planning.

This guide explains the BEPS 2.0 Pillar Two framework, how the global minimum tax works, which companies are in scope, and what compliance and planning steps multinationals should take now. Understanding BEPS 2.0 is essential for international tax professionals, CFOs, and controllers managing multinational entities.

What is BEPS?

Base Erosion and Profit Shifting (BEPS) refers to tax planning strategies used by multinational enterprises (MNEs) that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations. The OECD estimated that BEPS costs governments USD 100–240 billion in lost revenue annually — roughly 4–10% of global corporate income tax revenues.

In 2013, the OECD and G20 launched the BEPS Project, producing 15 Action Plans by 2015 addressing transfer pricing, treaty abuse, hybrid mismatches, controlled foreign corporation (CFC) rules, and transparency requirements.

📌 Key Fact Over 140 countries and jurisdictions participate in the OECD/G20 Inclusive Framework on BEPS, agreeing to implement minimum standards and best practices across the 15 BEPS Actions.

The 15 BEPS Action Plans

The original BEPS project focused on three core areas:

  • Coherence — Eliminating double non-taxation through hybrid mismatch rules (Actions 2, 3, 4)
  • Substance — Ensuring profits are taxed where economic activity occurs (Actions 5, 6, 7, 8–10)
  • Transparency — Improving data sharing between tax authorities (Actions 11–14)

The four BEPS minimum standards — those countries committed to implement — are Actions 5, 6, 13, and 14, covering harmful tax practices, treaty abuse, CbCR, and dispute resolution respectively.

BEPS 2.0 — The Two-Pillar Solution

In 2021, over 130 countries agreed on a landmark Two-Pillar Solution addressing the tax challenges of the digitalized economy. This represents the most significant reform of international tax rules in a century.

01

Pillar One — Reallocation of Taxing Rights

Reallocates a portion of profits from the largest MNEs (revenue >€20B, profitability >10%) to market jurisdictions regardless of physical presence. Primarily targets digital economy giants.

02

Pillar Two — Global Minimum Tax

Introduces a 15% global minimum effective tax rate for MNE groups with consolidated revenues above €750 million. In force in most major jurisdictions from 2024.

Pillar Two Deep Dive — The 15% Minimum

Pillar Two — formally the Global Anti-Base Erosion Rules (GloBE) — is now law in over 30 jurisdictions and is the most operationally urgent element of BEPS 2.0 for multinationals.

The Core Mechanism

1
Calculate Effective Tax Rate (ETR) by Jurisdiction
For each jurisdiction where the MNE operates, compute covered taxes divided by GloBE income. If ETR ≥ 15% → no top-up tax. If ETR < 15% → top-up required.
2
QDMTT Applied First (if available)
If the low-tax jurisdiction has enacted a Qualified Domestic Minimum Top-up Tax, that country collects the top-up tax itself before another country can claim it.
3
Income Inclusion Rule (IIR) — Parent Level
If no QDMTT, the ultimate parent entity's jurisdiction applies a top-up tax to bring the group's ETR in the low-tax jurisdiction up to 15%.
4
Undertaxed Profits Rule (UTPR) — Backstop
If IIR doesn't fully collect the top-up tax (e.g., the parent is in a non-implementing jurisdiction), the UTPR allows other group jurisdictions to collect the residual top-up.

Substance-Based Income Exclusion (SBIE)

A critical carve-out under Pillar Two: MNEs can exclude from GloBE income an amount equal to 5% of payroll costs plus 5% of the carrying value of tangible assets in each jurisdiction (transitional rates are higher in early years). This protects genuine economic substance from the minimum tax.

💡 Planning Insight The SBIE means that capital-intensive, employment-heavy operations in low-tax jurisdictions may face limited Pillar Two exposure. Pure IP holding companies or treasury centers with minimal staff and assets get no meaningful carve-out.

Global Implementation Status 2026

JurisdictionStatusEffective DateNotes
🇬🇧 United KingdomEnactedJan 1, 2024IIR + QDMTT in force. UTPR from 2025.
🇩🇪 GermanyEnactedJan 1, 2024Full GloBE rules implemented.
🇫🇷 FranceEnactedJan 1, 2024IIR + QDMTT + UTPR all enacted.
🇳🇱 NetherlandsEnactedJan 1, 2024Full GloBE implementation.
🇯🇵 JapanEnactedApr 1, 2024IIR effective from Japan's FY starting Apr 2024.
🇦🇺 AustraliaEnactedJan 1, 2024IIR + QDMTT enacted; UTPR 2025.
🇸🇬 SingaporeEnactedJan 1, 2025QDMTT enacted. IIR from 2025.
🇰🇷 South KoreaEnactedJan 1, 2024First Asian jurisdiction to enact GloBE.
🇨🇭 SwitzerlandEnactedJan 1, 2024QDMTT via constitutional amendment.
🇮🇪 IrelandEnactedJan 1, 2024Significant impact on multinationals with Irish IP structures.
🇺🇸 United StatesPendingTBDGILTI seen as partial equivalent. Full Pillar Two not yet enacted.
🇨🇳 ChinaConsultingTBDDomestic legislation in development.
🇮🇳 IndiaConsultingTBDEvaluating domestic minimum tax approach.

Impact on Withholding Tax Planning

Pillar Two interacts with withholding tax planning in several important ways:

  • WHT is a "covered tax" — withholding taxes paid are included in the numerator of the ETR calculation, potentially helping jurisdictions meet the 15% threshold
  • Treaty-reduced WHT rates may reduce covered taxes, increasing the risk of triggering a top-up tax in the source jurisdiction
  • Holding company structures relying on 0% WHT jurisdictions (Netherlands, Luxembourg, Singapore) are now scrutinized both for treaty access and Pillar Two ETR
  • Tax reclaims of WHT may reduce covered taxes in the year of refund, affecting the ETR for that period
⚠ Action Required MNE groups above €750M should have completed their Pillar Two impact assessment and data collection processes. The first GloBE Information Returns (GIR) are due in 2025 for FY2024. If you haven't mapped your group's ETR by jurisdiction, this is now urgent.

2026 BEPS Compliance Checklist

Key actions for multinationals in 2026:

  • ✅ Complete jurisdiction-by-jurisdiction ETR analysis
  • ✅ Identify jurisdictions where ETR falls below 15%
  • ✅ Assess SBIE (payroll + tangible assets carve-out) in each jurisdiction
  • ✅ File GloBE Information Return (GIR) — typically 15 months after FY end
  • ✅ Review intercompany WHT flows for impact on covered taxes
  • ✅ Ensure CbCR is filed and Local/Master Files are contemporaneous
  • ✅ Review IP structures for substance requirements
  • ✅ Assess impact of Pillar One on revenue attribution (if revenues >€20B)

Calculate Your WHT Position

Cross-reference your intercompany WHT rates with our free calculator and treaty explorer.

Open WHT Calculator →

Understanding BEPS Pillar Two

BEPS Pillar Two, formally known as the Global Anti-Base Erosion (GloBE) rules, establishes a global minimum effective tax rate of 15% for multinational enterprises with consolidated revenue of EUR 750 million or more. Developed by the OECD/G20 Inclusive Framework, these rules represent the most significant change to the international tax architecture in a century. The core idea is simple: if an MNE's profits in any jurisdiction are taxed at an effective rate below 15%, a "top-up tax" is collected to bring the rate up to the minimum floor.

The GloBE rules operate through three interlocking mechanisms. The Income Inclusion Rule (IIR) is the primary rule — it requires the ultimate parent entity to pay top-up tax on the low-taxed income of any constituent entity in the group. The Undertaxed Profits Rule (UTPR) acts as a backstop, allocating top-up tax to other jurisdictions if the parent's jurisdiction has not implemented the IIR. The Qualified Domestic Minimum Top-up Tax (QDMTT) allows jurisdictions to collect the top-up tax domestically before it can be claimed by another country under the IIR or UTPR.

Calculating the effective tax rate (ETR) under Pillar Two is more complex than simply dividing tax expense by pre-tax income. GloBE income starts from financial accounting income and makes specific adjustments (excluding certain dividends, equity gains, and policy disallows). Covered taxes include current taxes, deferred taxes (with specific modifications), and certain credits. A substance-based income exclusion (SBIE) provides a carve-out based on payroll costs and tangible asset values, reducing the income base subject to top-up tax. For a detailed walkthrough of the calculation, see our comprehensive BEPS Pillar Two guide.

How to Use This Tool

Our BEPS Pillar Two calculator helps you estimate the GloBE effective tax rate and any potential top-up tax for your multinational group. Input your financial accounting income, covered taxes, payroll costs, and tangible asset values by jurisdiction. The tool calculates the jurisdiction-level ETR, applies the substance-based income exclusion, and determines whether a top-up tax applies to bring the effective rate to the 15% minimum.

Related Resources

Pillar Two has important interactions with existing tax planning. The Tax Provision Calculator helps estimate the impact on your income tax expense, while the Transfer Pricing Calculator ensures intercompany pricing remains arm's length under the new rules. For companies considering restructuring their holding company arrangements, our Singapore vs Hong Kong comparison evaluates both hubs in light of the new minimum tax landscape. Consult our Glossary for definitions of GloBE-specific terms like SBIE, QDMTT, and top-up tax.