The OECD's Pillar Two global minimum tax, a 15% effective minimum rate on the profits of large multinational groups, is now in force in the EU, UK, South Korea, Japan, Australia, Switzerland, and many others as of 2024 and 2025. The 15% minimum applies to multinational groups with global revenues of EUR 750 million or more. For most small and mid-market businesses, Pillar Two does not directly apply, but it signals a broader shift in the international tax landscape that every cross-border business owner should understand.
What Pillar Two Actually Is
Pillar Two, formally the GloBE (Global Anti-Base Erosion) rules, establishes a minimum 15% effective tax rate on the profits of multinational enterprise (MNE) groups with annual revenues exceeding EUR 750 million. When a constituent entity of a covered MNE group is taxed below the 15% minimum in a jurisdiction, the parent company's home country (or another group member) can impose a 'top-up tax' to bring the effective rate to 15%.
The mechanism works through three charging rules: the Qualified Domestic Minimum Top-up Tax (QDMTT), the Income Inclusion Rule (IIR), and the Undertaxed Profits Rule (UTPR). The practical result is that low-tax jurisdictions (UAE freezone, Cayman, BVI, Irish IP box) can no longer reduce the effective tax rate below 15% for in-scope groups.
- Threshold: applies to MNE groups with EUR 750M+ in annual revenues; most SME groups are below the threshold
- 15% minimum: the effective tax rate (calculated under GloBE rules, which differ from statutory rate) must reach 15% for each jurisdiction
- Top-up tax: if the local rate is below 15%, the excess is collected by the parent jurisdiction under the IIR, or by another group member under the UTPR
- Excluded entities: investment funds, pension funds, and government entities are excluded from Pillar Two
Which Businesses Are Affected
Businesses below the EUR 750 million threshold are not subject to Pillar Two today. However, several dynamics affect smaller businesses indirectly. Countries implementing Pillar Two are using the opportunity to review and revise their broader low-tax regimes. Ireland, for example, is examining the long-term viability of aspects of its IP regime for post-Pillar Two covered groups. The UAE's introduction of corporate tax in 2023 was explicitly linked to the global Pillar Two framework.
High-growth businesses should model their anticipated revenue trajectory: a company that currently has EUR 600M in revenues may cross the EUR 750M threshold within a few years. Starting to understand Pillar Two exposure now, while the business is still below the threshold, is good governance.
- Below EUR 750M: not directly subject to GloBE rules; existing low-tax structures continue to apply
- Near-threshold groups: model future revenue trajectory; review structure for Pillar Two readiness
- Jurisdictional changes: some low-tax jurisdictions are introducing domestic top-up taxes (QDMTT) to capture revenue themselves rather than ceding it to the parent jurisdiction
- Substance requirements: Pillar Two's Substance-Based Income Exclusion reduces the GILTI-like minimum for entities with genuine payroll and tangible asset presence
Impact on Common Structures
For in-scope MNE groups, several commonly used structures have been materially affected by Pillar Two. Irish IP box regimes (6.25% effective rate on qualifying IP income) now trigger a top-up tax to 15% for covered groups. Dutch innovation box (9% rate), similarly affected. Cayman and BVI holding companies with no local tax: the profits are now subject to top-up tax in the parent jurisdiction.
The Substance-Based Income Exclusion (SBIE) provides a partial carve-out for real economic activity: 5% of carrying value of tangible assets plus 5% of eligible payroll costs are excluded from the GILTI-like base calculation. This incentivises real investment and employment in the low-tax jurisdiction, reducing but not eliminating the top-up tax obligation.
Planning in a Post-Pillar-Two World
For covered groups, tax planning has shifted from minimising statutory rates to maximising Pillar Two Substance-Based Income Exclusions, managing jurisdictional blending, and utilising the QDMTT mechanism to keep top-up taxes within lower-tax jurisdictions rather than ceding them to a higher-tax parent jurisdiction.
For groups below the EUR 750M threshold, Pillar Two's indirect impact, through changes to individual countries' domestic law in response to GloBE, is the more immediate concern. We monitor these changes and integrate them into our custom structuring advice.
Full Implementation
End-to-end execution of your tax strategy: entity formation, residency setup, ongoing compliance, and coordination managed by our team from start to finish.
Sources & Further Reading
- UAE Corporate Tax: Qualifying Minimum Top-up Tax- UAE Ministry of Finance