Key updates on the global implementation of Pillar 2

Vikas Vasal,
Brett Curtis,
Pierre Bourgeois,
Christina Busch,
Peter Vale,
Paolo Besio,
Jacob Mook,
David Sandison,
Linnea Sparrfeldt,
Matt Stringer,
David Sites
insight featured image
In October 2021, more than 130 countries agreed to implement a minimum 15% corporate tax rate for certain multinationals (global turnover over €750 million) as part of the second of the two pillars in the OECD’s ground-breaking taxing the digital economy framework. Here, we round-up the progress on implementation in a selection of leading global economies. We also look at the impact on businesses, likely go live timings and what could potentially delay the process.

What are the Pillar 2 rules?

Pillar 2 arose out of the Organisation for Economic Co-operation and Development (OECD) Base Erosion and Profit Shifting (BEPS) project and aims to end the ‘race to the bottom’ on tax rates by ensuring that multinationals pay a minimum effective corporate tax rate (of 15% regardless of the local tax rate or tax base).

The OECD released its proposed Model Rules and commentary for Pillar 2 in late 2021 and early 2022. The Model Rules provide details on two interlocking measures, the Income Inclusion Rule (IIR) and the Undertaxed Profits Rule (UTPR), whereby profits taxed at less than 15% would be targeted for additional taxation. The IIR imposes a top-up tax on the ultimate parent entity of a low-taxed foreign subsidiary. The UTPR seeks to deny deductions, or take similar actions,  to collect tax that would otherwise not be collected under the IIR.

In addition to these two rules, countries signed up to Pillar 2 may also choose to implement a Domestic Minimum Tax (DMT) which would take precedence over these and ensure any top-up tax which would otherwise flow overseas is collected in the territory in which the profits are generated.  
More recently, the OECD published:

  • a framework on Safe Harbours and Penalty Relief (released in December 2022) – providing details on the transitional reliefs available to businesses over the initial years of Pillar 2 implementation
  • administrative guidance (released in February 2023) – aiming to provide clarity over contentious areas of the Model Rules and aiming to provide greater certainty for businesses impacted by Pillar 2. 
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What the OECD implementation package means for you
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In order to implement Pillar 2, each country will enact the rules into its local legislation. Although the OECD remains committed to an ambitious timeline (with the intention for the initial stage of implementation by the end of 2023) there is not a global consensus on an appropriate timeline. 
We provide a summary of the latest updates from key jurisdictions below:

Australia     Canada     Germany

Ireland     Italy     The Netherlands     Singapore

Sweden     United Kingdom     United States

Australia flag imageAustralia

The Australian government released Exposure Draft legislation on 21 March 2024 to broadly adopt the OECD’s Pillar Two Mode Rules to prevent a ‘race to the bottom’ on corporate tax rates, and to protect the corporate tax base.

The Exposure Draft legislation will implement key aspects of Pillar 2 as follows:

  • a 15 per cent global minimum tax for large MNEs with the IIR applying to income years starting on or after 1 January 2024 and the UTPR applying to income years starting on or after 1 January 2025
  • a 15 per cent DMT applying to income years starting on or after 1 January 2024.

The DMT was unsurprising with the Government expressly commenting that a DMT would give Australia first claim on top-up tax for any low-taxed domestic income.

The Exposure Draft legislation is subject to further public consultation before its ultimate enactment and will be subject to OECD review to ensure it is consistent with OECD Model Rules.

image of a Canadian flagCanada

On August 4, 2023, the Canadian Department of Finance released draft legislation for the Global Minimum Tax Act (GMTA) which will introduce a global minimum tax (GMT) in Canada.

The GMTA includes two domestic fiscal measures of the OECD/G20 Inclusive Framework’s Pillar 2:

  • a 15% domestic minimum top-up tax on the income of Canadian-located entities and permanent establishments of multinational enterprise (MNE) groups—which should be a qualified domestic minimum top-up tax (QDMTT); and 
  • a 15% top-up tax, under an income inclusion rule (IIR), on the income of foreign-located entities and permanent establishments of MNE groups with Canadian ultimate or intermediate parent entities—a tax that is intended to be a qualified IIR. 

The GMTA intends to implement an undertaxed profits rule (UTPR), which is the third domestic fiscal measure of Pillar 2, in the future. 

Consistent with the Pillar 2 framework, the proposed Canadian GMT will apply to members of MNE groups that have annual consolidated revenues of €750 million or more, with a business presence in Canada and at least one foreign jurisdiction. The tax is proposed to apply to fiscal years of MNE groups on or after December 31, 2023 (with the UTPR expected to become effective one year later).  
At the time of writing, the Canadian GMT is not considered substantially enacted for accounting purposes.  

The GMTA will be a stand-alone statute rather than as an additional 'part' of the Canadian Income Tax Act. Subsection 3(1) of the GMTA prescribes that certain portions of the legislation (including the parts implementing the IIR and UTPR, but not the part implementing the QDMTT) are to be interpreted consistently with the OECD GloBE model rules, commentary, and administrative guidance (GloBE sources), as they may be amended from time to time, unless the context otherwise requires. A separate interpretive rule in paragraph 48(b), applicable to the QDMTT, refers only to the GloBE commentary.

This is a novel approach (although it has been used in Canada’s Common Reporting Standard legislation – Part XIX as well as the recently proposed anti-hybrid proposals). Canadian tax advisors have noted that there could be constitutional issues with this approach; most notably that it may conflict with the exclusive power of the Canadian Parliament to raise 'money by any mode or system of taxation'. Additionally, the use of dynamic interpretation will mean that future changes to the GloBE will automatically apply.

The GMTA follows the GloBE sources but its drafting deviates from these sources. Rather than simply adopting the GloBE model rules into Canadian law by reference, the legislation redrafts the rules in a manner that is consistent with Canadian domestic drafting of tax legislation.

Canada and its provinces offer generous tax credits for certain activities notably for R&D and certain other related activities in the film, clean energy, and hi-tech sectors. Typically, these tax credits are not refundable. Hence, they are not qualified credits. We understand that the federal and provincial taxation authorities are considering whether the credits should become refundable. 

Germany flag imageGermany 

Being an EU-member state, Germany is obliged to implement the Pillar 2 EU directive into national law by the end of this year with a first-time application in 2024. The discussion draft of the national law for the implementation of the EU Directive has been published by the German Federal Ministry of Finance in March 2023. After some changes during the legislative process the German parliament passed the law on 10 November 2023. It is expected that the Federal Council will give its approval in 2023 and the law shall come into force as planned on 1 January 2024.

Overall, the German law is strongly based on the EU Directive and the OECD Model Rules,   and also adopted the transitional Safe Harbour Rules. Entities that qualify for one out of three tests within the Safe Harbour Rules can therefore reduce their top-up tax to zero for fiscal years beginning before end of 2026.  

The German law will also introduce a Qualifying Domestic Minimum Top-Up Tax (QDMTT) which leads to a taxation in Germany for low-taxed Constituent Entities located in Germany that would trigger a top-up tax under the Pillar 2 rulings in another jurisdiction otherwise. If a foreign jurisdiction has introduced a domestic minimum tax such domestic tax eliminates any top-up tax liability under the German Minimum taxation rules if it qualifies as a QDMTT Safe Harbour based on German legislation.

To apply the QDMTT Safe Harbour, the QDMTT rules of the foreign jurisdiction must be consistent with the QDMTT rules of the German law respectively the EU Directive which may trigger additional compliance effort compared to other jurisdictions introducing a QDMTT safe harbour.

Even if the adoption of the Safe Harbour Rules and the introduction of a German QDMTT brings considerable simplifications for multinational companies, there are still compliance obligations in Germany. If the Ultimate Parent Entity is located in Germany both a minimum tax report and a tax return showing the calculation of the ETR and, if applicable, the QDMTT must be submitted for all group entities. This obligation also affects Constituent Entities located in Germany if no other group entity submits the GloBE Information Return in another jurisdiction.

If the Information Return is submitted in a foreign jurisdiction German Constituent Entities only have to submit a tax return showing the calculation of the ETR and QDMTT for the German entities. The requirement to collect data and obtain information therefore remains, in particular for German based UPEs in place for all countries in which constituent entities are domiciled. 

Ireland flag imageIreland

Similar to other countries across the globe, Ireland's corporate tax landscape is undergoing significant transformation with the introduction of Pillar 2 under the Finance (No. 2) Bill 2023. The Finance Bill contains the proposed Irish legislative measures for enacting the Pillar 2 regulations. These regulations are set to be applicable to qualifying businesses for accounting periods starting on or after 31 December 2023.  

Pillar 2 aims to ensure that in-scope MNE’s and large domestic groups i.e. those with consolidated group revenues of €750m or more in at least two of the four preceding fiscal years pay at least a 15% effective tax rate on their profits in each jurisdiction in which they operate.

Key developments:

  1. Draft Legislation: The Finance (No. 2) Bill 2023 introduced the draft legislation into the Taxes Consolidation Act, ensuring compliance with the EU Directive. This is a critical step in aligning Ireland's tax system with international standards. The Bill is currently under review in the Irish parliament, and is expected to be signed into law before Christmas.
  2. Consistency with OECD Model Rules: The Bill mandates that domestic rules are construed in line with the OECD Model Rules and published guidance. However, this is subject to the provision that interpretations remain consistent with the EU Directive. A statement from the European Commission is expected before the end of the year, affirming the compatibility of OECD guidance with the EU Directive. 
  3. Income Inclusion Rule (IIR) and Qualified Domestic Top-Up Tax (QDTT): The IIR requires the Ultimate Parent Entity (UPE) to compute Top-up Tax for each jurisdiction with Constituent Entities. If the UPE's jurisdiction does not implement the IIR, the responsibility shifts to the next intermediate parent entity under the IIR.  
  4. QDTT: QDTT allows a country to assert primary taxing rights on the profits of low-taxed constituent entities in that country under the Pillar II draft rules. Ireland has also incorporated QDTT provisions in the draft legislation along with QDTT Safe Harbour provision, which if met, would result in a deemed zero Top-up Tax under the IIR for that jurisdiction. The calculation for the QDTT is largely in line with the IIR and the Under-Taxed Payments Rule (UTPR),. Ireland has also opted to utilise the Local Accounting Standard rule, e.g. IFRS, FRS etc. to carry out QDTT calculations, which is further detailed in the Finance Bill.  
  5. Undertaxed Profits Rule (UTPR): Set to be operational from 2025, the UTPR allows for Top-Up Tax collection by other group members if low-taxed income is not taxed under the IIR or QDTT in any jurisdiction. 
  6. Tax credits:  The Finance Bill has revised the Irish Research and Development (R&D) tax credit, raising the qualifying credit from 25% to 30% of qualifying expenditure. This increase is significant because, starting in 2024, the R&D tax credit will be subject to taxation as GloBE income for businesses that fall within its scope. The increase in the tax credit is intended to offset the tax impact of Pillar 2 on these businesses. Additionally, the Digital Gaming Tax Credit has been structured as a qualified refundable tax credit. 
  7. Large Domestic Group: A special five-year carve-out provision is included for large domestic Irish groups that would typically fall under the scope of Pillar 2   application. 
  8. Administrative provisions: 
    • Registration Requirements:
      • Mandatory for entities liable for IIR and/or UTPR top-up tax in Ireland. 
      • Required for qualifying entities, including Irish constituent entities and Irish joint ventures in an in-scope group. 
    • Top-up Tax Information Return (GloBE Information Return) or Notification: Obligatory filing by each Irish constituent entity, unless a designated local entity is appointed. 
    • Top-up Tax Returns and Payments: 
      • IIR return and payment by the relevant parent entity. 
      • UTPR return and payment by each relevant UTPR entity or an appointed UTPR group filer. 
      • QDTT return and payment by each qualifying entity or an appointed QDTT group filer. 
    • Revenue has right to impose penalties for non-compliance with administrative provisions and also to issue notices to group members if the appointed UTPR/QDTT group filer fails to make payments. 

Future outlook:

  • The first reporting under these new rules is anticipated by 30 June 2026. 
  • The OECD peer review process timeline, to ascertain if the QDTT regime implemented by various jurisdictions are qualified and meet the requisite standards outlined by OECD, remains uncertain. Without these peer reviews being completed, it is difficult for businesses to determine with certainty whether or not the Irish QDTT can be treated as a qualified QDTT or whether the QDTT Safe Harbour   criteria are met for Ireland. It is anticipated that there will be a jurisdictional self-certification process, until such time that the full peer review is carried out, hence the expected risk should be insignificant for Ireland. 


Italy is implementing the EU Directive on the Global Minimum tax. In September 2023 a draft implementation law was presented and, simultaneously, a public consultation on said document was launched. Further, within the Tax Reform Law, approved last August, the draft implementation law that contains international tax provisions incorporates the provisions concerning the Global Minimum Tax was presented in October.
Preliminary, the law states that it intends to make reference to the OECD rules contained in the document 'Tax Challenges Arising from the Digitalization of the Economy – Global Anti-Base Erosion Model Rules (Pillar 2)' published on 14 December 2021 and to the 2022/2523 EU Directive published on 14 December 2022. Further, it states that the Italian law must be interpreted based on the Commentary to the OECD rules 'Tax Challenges Arising from the Digitalization of the Economy – Commentary to the Global Anti-Base Erosion Model Rules (Pillar 2)' published on 11 March 2022.
Final approval of the implementation law is supposed to take place within 2023 year-end, to have the new rules in force from 1st January 2024.
GloBe rules are applicable to international and domestic groups whose consolidated turnover is higher than 750 €/million in two of the four most recent years. The minimum tax is equal to 15%; in addition to the Income Inclusion Rule and to the Undertaxed Profit rule, a domestic minimum 15% tax will be introduced. To apply the provisions contained in the draft implementation law few specific Ministerial Decrees will be published.

Netherlands flag imageThe Netherlands

On 31 May 2023, the Dutch government published the final legislative proposal for the implementation of Pillar 2 as per 1 January 2023. Our Dutch tax specialists are working hard on a seven-step approach to tackle the compliance process that the new legislation introduces, and to help companies take the first step from theory to practice. 
If you are interested in this approach and further updates in the Netherlands, please visit the Grant Thornton Netherlands Pillar 2 page.

Singapore flag imageSingapore

Singapore is a signatory to the ‘inclusive framework’ and would therefore be obliged to bring taxation into line with OECD Pillar 2; however, the question of whether this is something Singapore would have chosen otherwise remains open.

There are currently around 1,800 companies in Singapore which are part of a multinational group with consolidated revenues of over €750 million. While the country’s headline corporate tax rate is 17%, an array of reliefs and reductions mean that most of these multinationals are currently paying less than 15%. The impact of Pillar 2 on Singapore could therefore be significant.

Tax incentives have helped Singapore to attract investment. But a peer review conducted in 2015 concluded that the most common tax incentives are not harmful tax practices. The country has always applied rigorous substance rules and many of these will continue. But under Pillar 2, Singapore could now be subject to a different set of formulaic substance-based carve-outs. This could end up being just another layer of rules for rules’ sake.

Less attention has focused on what would happen if Singapore followed the UK in considering a DMT alongside the OECD measures. As these are CFC rules without the activity carve-out, they could turn the country’s source-based system of taxation on its head. 

That question has now been answered to a degree. In February 2023, the Singapore government stated its intention to implement the GloBE rules as well as introduce a DMT with effect from any affected company’s financial year that starts on or after 1 January 2025. However, the government assured taxpayers that it will continue to monitor the developments around the world and adjust its implementation timeline, as needed, if there are delays internationally. It will also continue to engage businesses and provide them with sufficient notice ahead of any rules becoming effective. 

Picture of the Swedish flagSweden

Sweden has moved quickly in relation to the implementation of Pillar 2. Since the EU Minimum Tax Directive (the Directive) was adopted as of 14 December 2022, the legislation process kicked into action directly with a first official report from the Swedish Government already in February 2023. The Swedish legislator presented its first draft to new legislation after the summer holidays on 31 August 2023. The first draft was criticised but still, the final proposed bill that was presented on 26 October 2023 was not amended in particular.

Sweden has followed the Directive covering both multinational and national groups, and the rules introduce the IIR, UTPR and QDMTT rules as well as the general CbCR Safe Harbour rule. From a Swedish tax perspective, the Directive as well as the rules introduce a new way of determining decisive influence into Swedish tax legislation being the consolidating group entity for bookkeeping purposes. Swedish tax legislation does in most cases rest upon a decisive influence concept of +50% voting or equity power.

Consequently, from a Pillar 2 perspective there is certainly a new way of thinking. Not only the Top-up Tax Act is implemented but also other current tax laws such as the Income Tax Act and the Tax Procedure Act has been amended to align. The Swedish parliament passed the legislation on 13 December 2023, which means that Sweden has the rules implemented and in force as from 1 January 2024.

Grant Thornton Sweden sees a lot of activity from our clients in relation to Pillar 2. In addition, the auditors and accounting specialists of the Swedish firm are all working on complying with IASB’s reporting standard IAS12 for companies with IFRS Accounting standard already for FY 2023 where it is required to add information on consequences of Pillar 2 into the annual reports.  

UK flag imageUnited Kingdom (UK) 

Finance (No2) Act received Royal Assent on 11 July 2023 meaning the Income Inclusion Rule (IIR) and the UK’s Domestic Top-up Tax (DTT) will come into effect for accounting periods beginning on or after 31 December 2023.
The Autumn Statement (an update from the Chancellor of the Exchequer on the state of the UK economy) was held on 22 November 2023. The government restated its commitment to full Pillar 2 implementation and abolished its offshore receipts in respect of intangible property legislation saying Pillar 2 more comprehensively dealt with the tax-planning arrangements that ORIP sought to counter. It remains to be seen whether other anti-avoidance provisions will be removed or reformed to simplify the compliance burden for multinational businesses following the implementation of Pillar 2.
Draft legislation to implement the Undertaxed Profits Rule (UTPR) was published in July 2023 and this legislation was extensively updated in October to align with the July tranche of Administrative Guidance published by the OECD.
The October legislation included provisions implementing the UTPR transitional Safe Harbour  : as expected, this will apply where a territory’s combined nominal corporate tax rate is at least 20 percent and will mean any ‘untaxed amount’ is treated as zero. The UTPR Safe Harbour will have effect for an accounting period that begins on or before 31 December 2025 and ends before 31 December 2026, where it is not longer than 12 months. A draft Qualifying Domestic Top-up Tax (QDTT) Safe Harbour election has also been published. This will switch off Pillar 2 for those territories that already have a qualifying DMT and applies to accounting periods beginning on or after 31 December 2023.

US flag imageUnited States

Implementation of Pillar 2 in the US remains stalled. The administration had originally hoped to enact legislation aligning the US with Pillar 2 as part of President Joe Biden’s ‘Build Back Better’ agenda, but the final law from that effort, known as the Inflation Reduction Act, ultimately omitted the OECD driven reform.   

Passage of law to align the US international tax regime to Pillar 2 looks extremely unlikely in the near-term, though developments at the international level and in upcoming elections could change that. Republican tax writers are strongly opposed to the Pillar 2 agreement and have instead proposed legislation that would, if enacted, retaliate against countries that implement it. Members of both parties will generally continue to prioritise domestic priorities over international compliance, though implementation planned by other countries in 2024 and 2025 could put pressure on US businesses, who in turn could push Congress on the issue.

The implementation of Pillar 2 taxes abroad could have a significant impact on US companies, though transition relief will blunt the impact in the near term. The level of urgency for legislative efforts will ultimately come down to how potential double taxation affects US companies, and what impact compliance with the international agreement has on the overall US corporate tax base. The outcome of the election in 2024 could also affect whether implementations is possible in the US in 2025.
The US Treasury Department for now is focused on securing favorable treatment from the OECD on implementation guidance. The US was largely successful in getting favorable treatment for GILTI and transferable energy credits but is seeing more difficulty pushing for relief for the nonrefundable research and development tax credit. Nonetheless, the favorable GILTI guidance is only a temporary measure, scheduled to expire with the anticipated increase in the GILTI rate to 16.56% in 2026. This development sets the stage for subsequent rounds of negotiations. Treasury is also focused on providing guidance on whether Pillar 2 taxes are creditable against US tax.

The way forward 

There has been significant progress in many territories with regards to Pillar 2, particularly in the last six to nine months. There are now a number of territories with strong commitment to implement the IIR (and DMT in some cases) by the end of 2023. With less than eight months to go in such countries, it is important businesses use the time available to ready themselves for the introduction of these rules. It is also important to keep a close eye on legislative developments globally and their potential impact as more countries push towards implementation.

If you would like to discuss any aspect of Pillar 2 and how it may affect your business in further detail, please contact one of the authors below or speak to your local Grant Thornton expert.