Key points

• The OECD's Pillar Two global minimum tax of 15 percent is in force in many jurisdictions, including EU member states and the United Kingdom, and calendar-year groups are preparing for another year of compliance.
• The position of US-parented groups has been shaped by US opposition to the undertaxed profits rule as applied to them and by OECD work on a side-by-side arrangement, so confirm current guidance before finalizing positions.
• Transitional safe harbors based on country-by-country reporting data reduce the calculation burden in many jurisdictions, but they are time-limited and conditional.
• Qualified domestic minimum top-up taxes mean tax is increasingly paid where the low-taxed income arises, which affects cash taxes and year-end provisions.
• Year-end is the time to review data readiness, deferred tax accounting, information return deadlines and intragroup arrangements.

Introduction

Pillar Two, the OECD's model rules for a global minimum tax on large multinational groups, has moved from design to administration. Groups with consolidated revenue of at least 750 million euros in at least two of the previous four years are in scope. The question for tax teams in the last quarter of 2026 is less whether the rules apply than how to prepare for the numbers, the filings and the disputes that follow. This note summarizes where things stand and what to do before year-end.

How the rules work, briefly

The rules calculate an effective tax rate for each jurisdiction in which a group operates, using a defined income base and a defined measure of covered taxes. Where the rate is below 15 percent, a top-up tax is due, and it can be collected in three ways. A qualified domestic minimum top-up tax lets the source country collect first. The income inclusion rule lets the parent's country collect on low-taxed subsidiary income. The undertaxed profits rule is a backstop that denies deductions or makes an equivalent adjustment where top-up tax has not otherwise been collected.

Where the major jurisdictions stand

The EU Minimum Taxation Directive required member states to implement the income inclusion rule and the undertaxed profits rule, and most have done so, often with a domestic top-up tax. The United Kingdom has legislated a multinational top-up tax and a domestic top-up tax. Other significant jurisdictions, including Japan, South Korea, Canada, Australia and Switzerland, have introduced or announced rules with different effective dates and some differences in detail. In Asia, several jurisdictions, including Singapore, have introduced domestic top-up taxes while reviewing their tax incentives.

The United States has not enacted Pillar Two. A proposed retaliatory provision in a 2025 tax bill was removed before the legislation became law. In June 2025 the G7 issued a statement supporting a side-by-side system under which US-parented groups would be treated separately from the income inclusion and undertaxed profits rules, and the OECD Inclusive Framework has been working on how to implement it. Groups with US parents should follow that guidance as it develops and avoid assuming the outcome in provisions or disclosures.

Safe harbors and simplifications

The transitional country-by-country reporting safe harbor lets a group treat the top-up tax in a jurisdiction as zero if it meets one of three tests, based on de minimis amounts, a simplified effective tax rate or routine profits. It is available for a limited run of fiscal years, subject to conditions. A group relying on it needs reliable country-by-country report data and a process to test each jurisdiction. Permanent safe harbors, including for qualified domestic minimum top-up taxes, are also available, and the OECD has issued administrative guidance on several recurring questions, including the treatment of tax credits.

Because the transitional safe harbor is time-limited, groups should plan now for the full calculations that will be required when it ends, and begin building or buying the engines to run them.

Year-end planning checklist

• Data and systems. Confirm that the group can collect financial data by entity, map it to the Pillar Two income base and produce jurisdictional calculations on a reasonable timetable.
• Provisions. Assess the accounting for top-up taxes, including disclosure under the amendments to IAS 12 and deferred taxes, and agree the approach with the auditors.
• Safe harbor eligibility. Test each jurisdiction against the transitional safe harbor and identify where a full calculation is needed.
• Intragroup arrangements. Review financing, intellectual property and service arrangements whose effect on jurisdictional rates may change the top-up tax, and consider the transfer pricing consequences.
• Incentives. Check whether credits and holidays still deliver the intended benefit or are now partly offset by a top-up tax.
• Filing and payment. Map each jurisdiction's information return and payment deadlines, bearing in mind that the GloBE Information Return is generally due 15 months after the end of the fiscal year, and 18 months for the first year in scope.
• Governance. Assign a named owner for the process and brief the audit committee.

Disputes and certainty

Pillar Two creates new points of potential disagreement among tax authorities about the income base, the allocation of top-up tax and the treatment of particular credits. The OECD framework contemplates peer reviews and dispute prevention, but groups should expect audits and design their documentation accordingly. Early engagement with tax authorities where the group has material exposure can reduce uncertainty.

Looking ahead

We expect the side-by-side arrangement, the treatment of tax credits and the future of the transitional safe harbors to remain the main sources of change in 2027. Arjun Mehra-Collins and Corvane Ryle's tax team advise multinational groups on Pillar Two compliance, tax controversy and structuring, in coordination with our corporate and transactional lawyers.