Pillar Two

A multinational group may pay a low effective rate in one country while its overall tax bill is high, so Pillar Two examines the tax result by jurisdiction and not simply the group's worldwide average. The OECD's GloBE model rules are a framework that countries implement in their own laws, and they generally concern multinational groups meeting a EUR 750 million consolidated revenue threshold under specified prior-year tests.

Check the group first, because a single small company is not brought into scope merely because it has a foreign customer, and group structure and consolidated financial statements matter. The model scope involves qualifying revenue in at least two of the four preceding years, and the EUR 750 million measure concerns the multinational group, not necessarily each subsidiary.

Local implementation and special cases can change the assessment. The group also needs a map of its constituent entities and permanent establishments by jurisdiction, because different branches can affect the calculation.

Next, compute GloBE income by adjusting financial-accounting numbers under the rules, since ordinary taxable income is not automatically the GloBE measure. Covered taxes carry rule-specific adjustments and timing, so a statutory tax rate is not necessarily the effective rate.

The GloBE effective tax rate then combines the relevant income and covered taxes of all constituent entities in each jurisdiction, because one entity's standalone rate can mislead, and losses, timing differences and deferred taxes can change the result so that a simple cash-tax percentage is inadequate. If the calculated jurisdictional rate is below the 15% minimum, the difference produces a top-up percentage, which is not yet the final tax bill.

A substance-based exclusion, a defined amount based on payroll and tangible assets, reduces the income subject to that percentage, and OECD material calls the remainder excess profit. Do not assume every low-rate location owes exactly 6% more, because the effective rate, excess-profit calculation, adjustments and safe harbours shape the result, and simplified calculations may apply in qualifying circumstances so no exemption should be assumed without checking current rules.

Who collects depends on implementation: a qualified domestic minimum top-up tax (DMTT) gives the low-tax jurisdiction the first claim, while income inclusion and undertaxed profits mechanisms can apply elsewhere under implemented rules. The OECD model does not itself replace local legislation, and adoption dates and filing obligations differ, so for example the UAE applies a DMTT to in-scope local entities for financial years starting on or after 1 January 2025 while other countries use their own enacted dates and rule combinations.

A tax holiday or credit may lower covered taxes under the calculation, but the effect depends on its form and relevant guidance. Prepare data early, because payroll, tangible assets, financial statements and tax positions may be spread across subsidiaries, and coordinate finance and tax teams since local teams know statutory filings while group teams assemble jurisdictional computations.

Model transactions as well, because moving an entity or asset can change the group map so that a low local rate no longer means a low group-level burden, and watch OECD administrative guidance and domestic rule changes, using the rules applicable to the relevant financial year. For owners, Pillar Two matters if their group is large enough and operates across borders, since it turns local low-tax outcomes into a group-wide compliance and modelling question, so show assumptions alongside any top-up estimate.