Is Your Company Ready for Pillar Two?

The international tax landscape is undergoing its most significant transformation in decades. The OECD’s Pillar Two Global Minimum Tax framework is no longer just a concept- it’s becoming operational across many jurisdictions, with real implications starting as early as 2024 in some countries and fully in 2025 with the application of the Under-Taxed Profits Rule (UTPR).

Pillar Two is designed to ensure large multinational enterprises (MNEs) pay a minimum effective tax rate of 15% on the income they earn in each jurisdiction. But beyond the headlines, the question remains:

Are businesses truly ready?

What Is Pillar Two, Technically Speaking?

Pillar Two introduces a coordinated set of rules, including:

1. Income Inclusion Rule (IIR) – Requires the parent company to pay top-up tax when subsidiaries are taxed below 15%.
2. Under-Taxed Profits Rule (UTPR) – Starting in 2025, allows countries to collect top-up tax when income isn’t taxed adequately elsewhere.
3. Qualified Domestic Minimum Top-Up Tax (QDMTT) – Gives jurisdictions the first right to tax low-taxed profits before others do.
4. Subject to Tax Rule (STTR) – A treaty-based withholding rule, particularly relevant for payments to developing countries.

These rules target large MNEs (those with consolidated revenues over €750 million) and are being adopted by more than 140 jurisdictions worldwide.

The Readiness Gap: Data, Processes & Technology

Pillar Two is not just a tax policy—it’s a data and systems challenge.

Companies will need to:

• Identify in-scope entities and assess local applicability (especially for QDMTT jurisdictions).
• Consolidate and reconcile financial data across multiple GAAPs and systems.
• Adjust for covered taxes, deferred tax positions, and complex Pillar Two-specific calculations.
• Classify tax credits (only refundable credits count favorably in ETR).

Transitional Safe Harbours may offer some relief using CbCR data for 2024–2026, but this is not a substitutefor full readiness.

Key Actions Businesses Should Be Taking Now

1. Tax Modeling & Scenario Planning Start estimating the potential top-up tax liability by jurisdiction, using internal or external modeling tools.
2. Data Readiness Assessment Identify what data is needed (e.g., covered taxes, GloBE income, deferred taxes) and where it resides.
3. Technology & Process Integration Leverage automation and dedicated Pillar Two software for calculation, consolidation, and reporting.
4. Governance & Centralization Centralized ownership—ideally within the tax function—is key for consistent application and oversight.
5. Intercompany Review Restructure intercompany arrangements and hybrid instruments that may trigger adverse Pillar Two outcomes.
6. Cross-functional CollaborationTax, finance, accounting, and IT teams must work in lockstep. Controllers play a vital role in data accuracy and reconciliation.

Complex Transactions Under the Microscope

Deals such as M&A, carve-outs, and joint venturesmust now consider Pillar Two implications—top-up taxes may arise even when domestic taxes appear compliant.

Practical Tips for Tax Teams

• Begin Pillar Two impact assessments for all jurisdictions.
• Understand how non-refundable tax credits affect the ETR.
• Evaluate whether deferred taxes are recorded in a Pillar Two-compliant manner.
• Ensure alignment between statutory accounts and tax reporting.

What’s Coming Next?

With the UTPR effective in 2025, and QDMTTs already in effect in jurisdictions like the UK, Japan, and South Korea, the window for preparation is closing. Local legislation will vary—some will adopt local GAAP, others IFRS—making coordination across countries even more critical.

Pillar Two is more than just a compliance issue—it’s a strategic tax, data, and governance challengethat requires early planning, cross-border coordination, and technological enablement. The MNEs that act now will not only reduce risk but may also find opportunities in efficient structuring and smart technology adoption.

Is your organization ready for Pillar Two?

Let’s talk about how to operationalize compliance effectively. Feel free to reach out or share your perspective below.