Companies must manage global reporting and local obligations.
Key takeaways
A coordinated approach is essential for sustainable compliance.
Proactive planning will position companies for long-term success.
Pillar Two, part of the OECD/G20 Inclusive Framework’s global tax reform initiative, aims to ensure large multinational enterprises (MNEs) pay a minimum effective tax rate of 15% in each jurisdiction in which they operate. It applies to multinational groups with annual consolidated revenue exceeding €750 million in two of the preceding years.
The framework includes three mechanisms that allow jurisdictions to collect top-up tax on low-taxed entities within a multinational group:
- Qualified domestic minimum top-up tax (QDMTT): A domestic minimum tax that allows a jurisdiction to collect top-up tax on low-taxed income for entities located within that jurisdiction.
- Income inclusion rule (IIR): Requires a parent entity in an implementing jurisdiction to pay top-up tax on the low-taxed income of its subsidiaries where no QDMTT applies.
- Undertaxed profits rule (UTPR): A backstop rule that applies when neither QDMTT nor IIR captures the low-taxed income. It allows other jurisdictions to deny deductions or impose equivalent tax to ensure the top-up tax is collected.
To date, over 50 jurisdictions have implemented Pillar Two legislation, which is generally effective for fiscal years beginning in 2024.
G7 and U.S. Treasury announcements
In June 2025, the G7 proposed a “side-by-side” system under which U.S.-parented groups would be fully excluded from the UTPR and IIR for their domestic and foreign profits, in exchange for the removal of section 899 from the One Big Beautiful Bill Act. The G7 committed to supporting this proposal in negotiations with the broader OECD/G20 Inclusive Framework.
However, the G7 proposal has not yet been enacted or implemented. Its technical details, timing and effective dates remain uncertain. For the proposal to take effect, the Inclusive Framework must agree and enact it in local legislation.
While politically significant, the G7 statement has no binding legal effect and does not override domestic Pillar Two legislation already in force. U.S.-parented groups must continue preparing for compliance, as they remain exposed to top-up tax liabilities and reporting obligations in jurisdictions that have implemented QDMTTs.
Even if the G7 agreement is ultimately adopted, it will not eliminate jurisdiction-level compliance requirements. Countries implementing Pillar Two will continue to require local registration, QDMTT calculations and top-up tax return filings. Companies must also retain supporting documentation to satisfy local audit requirements. This process reinforces the need for a compliance framework that is globally coordinated and locally responsive.
Significant administrative complexity
The implementation of the Pillar Two Global Anti-Base Erosion Rules (GloBE) introduces significant administrative complexity for MNEs. While the policy objective is to ensure a minimum level of taxation on profits in each jurisdiction, the practical reality is far more intricate. The flexibility granted under the Inclusive Framework has resulted in a fragmented implementation landscape, with varying combinations of rules and inconsistent compliance timelines.
The GloBE Information Return (GIR) is designed to provide tax authorities with standardized disclosures on effective tax rates, covered taxes and top-up tax liabilities across jurisdictions. At the local level, however, compliance is administered through jurisdiction-specific top-up tax returns, with varying filing requirements and due dates.
Key calculations such as the IIR, UTPR and QDMTT require jurisdiction-by-jurisdiction calculations of GloBE income, covered taxes and effective tax rates. These calculations rely on complex adjustments to financial accounting data, necessitating robust data collection, reconciliation processes and governance frameworks. MNEs must invest in scalable systems and cross-functional coordination to meet the compliance demands of Pillar Two compliance.
Benefits of centralized solutions
A robust Pillar Two compliance solution must go beyond global reporting—it should support jurisdiction-specific requirements at the entity level. This solution includes calculating effective tax rates and top-up taxes under local QDMTT rules, tracking country-specific registration and filing deadlines, and managing compliance with the GIR. Standardizing data across jurisdictions reduces the manual burden on local finance teams and ensures consistency in reporting. Additionally, companies will need to generate audit-ready documentation and maintain workflow traceability to support local tax authority reviews and inquiries.
Modern centralized platforms enable electronic filing of the GIR and local QDMTT returns through a single interface, helping organizations streamline compliance, reduce duplication and maintain a unified audit trail across jurisdictions.
A proactive approach
To build a sustainable and effective Pillar Two compliance framework, companies should:
Design processes that align with their legal entity structure and operational footprint.
Conduct jurisdiction-by-jurisdiction impact assessments to identify where top-up taxes may arise and how local rules apply.
Develop a compliance roadmap that aligns with registration, notification and filing deadlines across jurisdictions.
Implement centralized technology solutions to standardize data, automate calculations and support global and local reporting.
Establish governance and oversight models to ensure transparency, accountability and audit readiness across all levels of the organization.
The takeaway
As the OECD’s Pillar Two rules move from global agreement to local enforcement, companies are facing a new era of tax compliance—one that is technically complex and operationally demanding. The challenge lies not only in interpreting the rules, but in then implementing them consistently across dozens of jurisdictions, each with varying legislation, timelines and reporting requirements.
To meet this challenge, companies need a coordinated approach that blends technology and technical tax knowledge with global compliance execution.
RSM contributors
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