The OECD/G20 Inclusive Framework's Pillar Two rules aim to ensure that large multinational groups with annual revenue of at least €750 million pay a minimum effective tax rate of 15% in every jurisdiction where they operate. The European Union implemented the rules through a directive, with the income inclusion rule applying from 2024 and the undertaxed profits rule from 2025 in most member states.
In June 2025 the G7 announced a shared understanding on a 'side-by-side' system under which US-parented groups would be excluded from the income inclusion rule and the undertaxed profits rule, in recognition of existing US minimum tax regimes. The Inclusive Framework was asked to develop the details.
What the side-by-side approach changes
Under the G7 statement, US-parented groups would remain subject to domestic minimum top-up taxes (QDMTTs) imposed by other countries, but would not be exposed to the IIR and UTPR — the mechanisms that allow a jurisdiction to tax low-taxed profits arising elsewhere in a group.
The announcement followed the removal of a proposed retaliatory tax provision from US tax legislation, and was presented as a way to preserve stability in the international tax system. Detailed Inclusive Framework guidance on implementing the approach followed as part of the ongoing work programme.
The rules still apply to most groups
For groups headquartered outside the United States, including most European multinationals, Pillar Two continues to apply in full. Many jurisdictions have also introduced QDMTTs, which ensure top-up tax on low-taxed local profits is collected locally rather than by another country.
The first GloBE Information Returns and related notifications are due in 2026 for many groups, making data collection and jurisdictional effective tax rate calculations an immediate operational priority.
Accounting and disclosure
In May 2023 the IASB amended IAS 12 to introduce a temporary mandatory exception from recognising and disclosing deferred taxes arising from Pillar Two, alongside targeted disclosures about current tax exposure. Groups must still disclose their current tax expense related to Pillar Two and, where legislation is enacted but not yet effective, known or reasonably estimable exposure.
Auditors will look for robust processes to calculate top-up tax, particularly given the complexity of transitional safe harbours and the volume of data required from each jurisdiction.
Practical considerations
Groups should revisit their Pillar Two impact models to reflect the latest guidance, confirm filing obligations in each jurisdiction, and ensure that tax, accounting and treasury teams share consistent data. Legal entity rationalisation and incentive planning should also be reconsidered in light of qualified refundable tax credit rules.
Conclusion
Pillar Two is here to stay, even if its reach has been adjusted. For in-scope groups, the challenge has shifted from interpreting rules to executing reliable calculations and filings — work that sits squarely at the intersection of tax, accounting and audit.
