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Pillar Two 2024: Preparing for the New Compliance Reality

Explore developments around Pillar Two, compliance issues, and planning strategies to consider.
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In 2024, as the Pillar Two Model Rules continue to take effect throughout the world and nations ramp up their adoption of this sweeping tax reform, corporations and tax authorities alike will need to prepare for the risks and compliance burden it will bring. Though many countries have adopted certain aspects of Pillar Two already, the Organisation for Economic Co-operation and Development (OECD) has officially recommended that Pillar Two become effective in 2024 (with the exception of the Undertaxed Payments/Profits Rule,1 which is recommended to become effective in 2025).


The OECD introduced Pillar Two as a means to discourage tax jurisdictions from setting low corporate tax rates in order to attract foreign business investment, i.e., the “race to the bottom.” Pillar Two is part of a two-pronged approach to address the tax challenges of the increasingly digitized economy. Its counterpart, Pillar One, aims to expand the authority of jurisdictions to tax the corporate profits earned on sales in their jurisdictions by corporations with no local physical location. The overall idea of Pillar Two is simple: Implement a global corporate minimum tax of 15% (set to rise to 17% by 2026) on multinational enterprises (MNEs) with consolidated revenue above EUR 750 million. However, the coordination and implementation required is extremely complex. The global corporate minimum tax will eventually be enforced via a variety of mechanisms, including:

  1. Qualified Domestic Minimum Top-Up Tax (QDMTT): A minimum tax imposed by the domestic law of a jurisdiction that computes its own top-up tax following the Pillar Two rules.
  2. Income Inclusion Rule (IIR): A top-up tax at the highest level of an MNE group related to low-taxed income of its constituent entities.
  3. UTPR: A rule that allows a jurisdiction to deny deductions in its own jurisdiction to top up any low-taxed jurisdictions of an MNE group not brought into charge under the IIR or QDMTT.

If implemented properly, Pillar Two will negate the benefits of setting up shop in a low-tax jurisdiction for the sole purpose of reducing the global effective tax rate.

Increasing Global Adoption

European Union (EU) Member States formally adopted the Minimum Tax Directive on December 15, 2022.2 This directive required EU Member States to transpose the Pillar Two rules into their domestic law by December 31, 2023, with the UTPR taking effect on or after December 31, 2024. The U.S. has not yet implemented Pillar Two; however, large U.S. MNEs will still be affected because all EU nations are set to implement the rules, as well as other major U.S. trade partners, including Australia, Canada, Japan, South Korea, and Switzerland.

Jurisdictions have begun adopting the QDMTT, IIR, and UTPR into their domestic law at a staggered pace; different jurisdictions have drafted legislation for one or all three mechanisms already, and more have plans to do so in the near future. Though it appears widespread adoption is the general direction the global tax community is headed toward, this staggered path of adoption has added another layer of difficulty for companies trying to determine the compliance steps they will need to take. Tax jurisdictions have an incentive to adopt and implement Pillar Two. Otherwise, they risk losing potential tax revenue from the three mechanisms described above.

The Challenge

The challenge ahead for corporations subject to Pillar Two will be an increased complexity in compliance and strategic planning. An enormous amount of data will be required for corporations to calculate their tax burden and appropriate provisions under the new rules; it will be critical that this data be consistent across jurisdictions. Many groups may not currently have the processes and technology in place for consistent data reporting. On the strategic planning side, as historically low-tax jurisdictions lose the incentive of their tax rate, they may raise their corporate income tax rates to be closer to 15%, and/or develop other incentives to attract foreign investment. MNEs will need to weigh the benefits of new incentives and consider their global structure and transactions in relation to this shift.


As Pillar Two continues to solidify and create a new reality through the widespread adoption of the QDMTT, IIR, and UTPR, it is critical that MNEs prepare for what lies ahead. MNEs may want to consider consulting with experienced tax professionals to better understand the critical issues, including which of their operating jurisdictions will be impacted in the coming years, what data will be required from their group, and how to adapt to the demands that Pillar Two will place on their internal tax function. For more information regarding how we can assist you with your Pillar Two needs, please reach out to a transfer pricing professional at FORVIS.

  • 1 Originally, UTPR stood for the Undertaxed Payments Rule, when introduced as a global anti-base erosion (GloBE) rule proposed by the OECD/G-20 inclusive framework on base erosion and profit shifting. Currently, UTPR is used as a standalone acronym that can be interpreted as the Undertaxed Profits Rule or the Undertaxed Payments Rule.
  • 2 “International taxation: Council reaches agreement on a minimum level of taxation for largest corporations,", December 12, 2022.

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