Pillar 2: new rules introduce a 15 per cent minimum rate of corporation tax for large multinationals

29 June 2021

Plans are at an advanced stage for the introduction of a minimum global corporate income tax rate of 15 per cent from 2023.

This will apply to larger multinational enterprises with income of at least €750m. The rules are being introduced under Pillar 2 of the OECD’s reforms to the international tax system. Around 140 countries, led by the G7 and G20, support the measures and plan to adopt the rules through a multilateral instrument later in 2022.

How will the Pillar 2 rules work?

The OECD has produced model rules for the operation of Pillar 2. While there is more to come, the requirements and potential impacts of Pillar 2 may now be clearly anticipated.

Pillar 2 identifies relevant income and profit from group entities in a jurisdiction together with related covered taxes.

The effective tax rate for a group’s aggregate results in each territory is then compared to the global minimum rate of 15 per cent. Any shortfall will give rise to ‘top-up tax’ payable either by the ultimate parent entity of the group or, in some circumstances, an intermediate parent in the group structure.

Most top-up tax is expected to be collected through the Income Inclusion Rule. Any excess will be picked up by an Undertaxed Profits Rule. Some territories, for example the UK, plan to introduce a domestic minimum tax which will ensure the amount of any top-up tax is collected locally instead.

The computation of amounts due will be filed by the group’s ultimate parent entity in a specific ‘Globe return’ due 15 months after the year end (or 18 months for the first period). Local entities will need to notify their tax authority of the filing jurisdiction.

What information is needed?

The calculation will use information from a group’s financial statements, as the OECD’s aim is to rely on existing data. The accounting standards of the ultimate parent will be the starting point, although local accounting standards may be used without adjustment where differences fall within set thresholds.

There is no exclusion for materiality just because there is no requirement to include an entity in consolidated accounts.

Adjustments are required to align results in the accounts more closely with local tax computations. Some entities such as investment companies or flow through entities have specific additional rules.

Determining the amount of covered taxes paid will rely on the current tax reported in the accounts. Addressing the impact of losses or tax credits will rely on the deferred tax balance. It will be important for groups to have confidence in the composition and robustness of both of these balances at an entity level.It is possible to make various elections under the rules. There are also de minimis limits with respect to the scale of activities in each jurisdiction.

Next steps – addressing the requirements of Pillar 2

Businesses falling within the rules should take steps now to ensure they can address Pillar 2 and can manage both the associated governance requirements and stakeholder expectations.

1. Entity characterisation

Review and classify group entities, for example:

  • Investment entities
  • Flow through entities
  • Other exemptions, eg shipping
  • Ownership structure, eg joint ventures

2. Information requirements

Gain comfort around nature and quality of data:

  • Accounting standards
  • Robustness of accounting data, eg current and deferred tax numbers
  • Confirming covered taxes
  • Transfer pricing


Modelling of likely impacts and key issue identification, including:

  • Test run using prior years – may be relevant for qualification criteria
  • Assumptions
  • Data availability

4.Elections and exemptions

Identify and consider potential elections and exemptions available to the group:

  • Determine what elections are available, relevant or required
  • Identify potential exemptions, eg de minimis territories
  • Understand impacts
  • Secure buy-in before irrevocable elections made

5. Processes

Ensure processes in place when reporting goes live:

  • Information management systems
  • Governance
  • Timetable and buy-in
  • Business change and key event identification
  • Managing stakeholder expectations

How can we help?

Now is the time to be addressing Pillar 2. We are supporting businesses to understand not only the potential tax impact, but also where risk and complexity lies in information gathering and application of the rules. Working closely with our international network we bring together our specialists in international tax, transfer pricing, tax accounting and governance to help you build a robust reporting process and manage stakeholder expectations.

For more information, please contact Andrew Seidler, Duncan Nott or your usual RSM contact.