What Is Pillar Two?
Pillar Two is a global minimum taxation framework under which large multinational groups pay top-up tax where profits are taxed locally below a minimum rate.
Also known as: Global Minimum Tax, GloBE Rules.
How Pillar Two works
Pillar Two is the global minimum tax component of the OECD/G20 reform, implemented in the EU by Council Directive (EU) 2022/2523, and applies to groups with annual revenue of EUR 750 million or more in at least two of the four preceding fiscal years, with a minimum tax rate of 15% tested jurisdiction by jurisdiction. Where the effective rate in a jurisdiction falls below 15%, the income inclusion rule generally lets the parent entity's country collect top-up tax, and the undertaxed payment rule acts as a backstop in other group jurisdictions. Many countries also apply domestic minimum top-up taxes so that the shortfall is collected locally. Application dates, safe harbours and guidance vary by country and continue to evolve.
Pillar Two vs Pillar One
Unlike Pillar One, which reallocates where part of large multinational profits is taxed, Pillar Two sets a floor on the effective tax rate paid in each jurisdiction.
Example
Illustrative example: A group above the revenue threshold has a subsidiary in Country B whose effective tax rate, computed under the Pillar Two rules, falls below the minimum. Country A, where the ultimate parent is located, may charge top-up tax on the shortfall, unless Country B collects a qualifying domestic top-up tax first.
Common misconception
Myth: Pillar Two imposes a 15% minimum tax on every company, including small nomad-owned businesses.
Reality: Pillar Two applies only to groups with annual revenue of EUR 750 million or more in at least two of the four preceding fiscal years, so small owner-managed companies remain under ordinary domestic rules.
Frequently asked questions
Who does Pillar Two apply to?
Pillar Two applies to multinational and large-scale domestic groups with annual revenue of EUR 750 million or more in at least two of the four fiscal years preceding the tested year, under EU Directive 2022/2523.
What is the Pillar Two minimum tax rate?
The Pillar Two minimum tax rate is 15%, tested jurisdiction by jurisdiction, with top-up tax charged where a group's effective tax rate in a jurisdiction falls below that level.
Related terms
- Pillar One — Companion pillar reallocating taxing rights to markets
- Global Minimum Tax — Common name for the Pillar Two rules
- Top-Up Tax — Charge collected when the effective rate is too low
- Undertaxed Payment Rule (UTPR) — Backstop rule within the Pillar Two architecture
Related guides
- Global tax reform and US digital nomads — Context on the global minimum tax
- Incorporation options for location-independent entrepreneurs — Why small companies stay under domestic rules
Sources
Last verified: 2026-10-09. This entry is general information, not tax or legal advice; rules vary by country and change over time.
