Pillar Two and the 15% Floor: What the Global Minimum Tax Means for Clients In and Out of Scope

For decades, low headline rates steered where profits were booked. The new global framework rewrites that logic, and its ripple effects reach groups that will never pay a rupee of top-up tax.

When a client asks whether a company in a low-tax jurisdiction still makes sense, the honest answer today begins with a question back: "What actually happens there - who works there, what do they own, which decisions are taken there?"

That shift in the conversation is the real legacy of the global minimum tax. Even clients far below its revenue threshold are now advised in a world shaped by it.

The moment the mood changed

In 2016 the European Commission directed Ireland to recover roughly EUR13 billion from Apple, on the basis that Irish tax rulings amounted to unlawful state aid. Ireland and Apple contested the order for years, and in September 2024 the European Court of Justice ruled in the Commission's favour.

Whatever one's view of the case, it marked a turning point. Large groups had long placed profits where tax was lowest. By the 2020s, governments had collectively decided that this game needed new rules.

Fifty years of rate competition

International corporate tax long worked on a familiar pattern. Countries courted investment with lower rates and bespoke arrangements, and companies with valuable intangibles - software, brands, patents - booked profit in low- or zero-tax locations, sometimes with very little activity on the ground.

Much of this was lawful. It grew increasingly unpopular - with voters, with governments losing revenue and with businesses that couldn't access the same structures.

In October 2021 around 136 members of the OECD/G20 Inclusive Framework agreed a two-pillar solution. Pillar Two introduced what had once seemed out of reach:

a minimum effective tax rate of 15% for large multinational groups worldwide.

Lesson from history: what cannot be located cannot be taxed

Tax systems were designed for farms, factories and ships - assets that stay put. As value migrated into ideas, brands and code, it became far easier to relocate profit on paper than in reality.

Pillar Two returns to an older instinct: profit should be visible where the work is genuinely done. The rules reward people and tangible assets in a place and sharply reduce the reward for shifting profit on paper alone.

The mechanics in plain terms

The GloBE (Global Anti-Base Erosion) rules cover multinational groups whose consolidated revenue reached at least EUR750 million in at least two of the four preceding years.

For each jurisdiction in which such a group operates, an effective tax rate is computed under common rules. Where it falls below 15%, a top-up tax may arise.

That top-up can be collected in three ways:

• Qualified domestic minimum top-up tax (QDMTT) - the low-tax jurisdiction collects it itself.
• Income inclusion rule (IIR) - the parent's jurisdiction collects it.
• Undertaxed profits rule (UTPR) - a backstop that lets other jurisdictions where the group operates collect it.

The upshot: parking profit in a zero-tax location no longer eliminates the tax. Someone, somewhere, collects the difference.

The 2026 development: side-by-side

Rollout has been bumpy. In 2025 the United States objected strongly to the IIR and UTPR applying to US-headquartered groups. Following G7 discussions, the Inclusive Framework released a "side-by-side" package in January 2026. Groups whose ultimate parent sits in a jurisdiction with a qualifying minimum tax regime - in practice, the United States - can be exempted from the IIR and UTPR, while domestic minimum taxes elsewhere continue to bite.

The technical detail is still being worked out. The broader signal is plain: the global minimum tax has survived, even as large economies keep negotiating how it fits their own systems.

The minimum tax didn't end competition between countries. It changed what they compete on.

In a nutshell

Essence: profit booked where nothing real happens is now likely to be taxed somewhere regardless - so substance, not location, settles the final tax outcome.

Why mid-sized clients should still care

A practitioner advising a Rs. 300 crore group may reasonably ask what any of this has to do with them. Quite a lot, in five ways.

1. Incentives are being rebuilt

Many countries attracted investment with tax holidays and concessional rates. For in-scope groups, a holiday can now simply produce top-up tax elsewhere. Governments are therefore moving towards incentives that survive the rules - qualified refundable credits, expenditure-linked grants and support tied to real activity. Clients choosing a location should assess the incentive as it will look in five years, not as it looked five years ago.

2. Substance carries more weight

The rules include an exclusion based on payroll and tangible assets in each jurisdiction. Real employees and real assets reduce top-up tax. Structures without substance lose their purpose.

3. Subsidiaries of large groups carry new compliance

Indian subsidiaries of in-scope groups may have to supply detailed data for GloBE computations and information returns - often on tight group timelines.

4. Location decisions are rebalanced

When rate differences matter less, other factors matter more: talent, infrastructure, market access, political stability, logistics and regulatory quality. Many of these favour India.

5. The wider direction applies to everyone

Pillar Two sits within a larger trend - more transparency, more information exchange, more substance tests and less patience for artificial arrangements. Mid-sized groups may be out of scope, but they operate in the same climate.

For practitioners: advising in a Pillar Two world

• Identify in-scope clients early. Check whether an Indian client belongs to a group above the EUR750 million threshold, including foreign parents whose revenue the client may not track.
• Plan the data trail. GloBE computations rely on accounting data, deferred tax and covered taxes by jurisdiction; agree with the group what the Indian entity must provide and when.
• Re-test incentive claims. For in-scope groups, quantify whether an Indian or foreign incentive still produces a net benefit after any top-up.
• Review outbound structures for substance. For clients below the threshold, apply the same discipline: people, premises, decision-making and board activity in each foreign entity.
• Coordinate with transfer pricing. Profit allocation between entities drives jurisdictional effective rates, so TP policies and Pillar Two analysis must be read together.

Pillar One: still unresolved

Pillar One aimed to give market countries a share of the taxing rights over the largest and most profitable multinationals and to replace unilateral digital services taxes. It has met long delays and political resistance, and its future remains unclear.

The uncomfortable reality

For years some businesses approached tax as a location puzzle to be solved with structures.

The new environment treats tax as a reflection of where value is actually created.

Hollow structures are turning from clever savings into costly liabilities.

Indicators of success

• Every entity has real staff, decisions and activities where it is registered.
• Board meetings and significant decisions take place in the country of incorporation.
• Tax paid in each country is consistent with what happens there.
• The group structure can be explained on a single page.
• Treaty benefits are claimed only where substance supports them.

Outlook: the coming decade

The global minimum tax, automatic information exchange and tougher anti-avoidance provisions are steadily eroding the value of low-tax structures without substance. Even with the side-by-side arrangements agreed in early 2026 for some countries, profits will increasingly be taxed where real activity takes place.

Immediate actions by role

• CFO: sketch the group structure and note the real activity in each entity.
• Practitioner: flag any entity that exists mainly for tax reasons.
• Board: ask whether the structure still makes sense after the global changes.
• Promoter: ask how the group's effective rate would look under a 15% floor.

Illustration from a smaller enterprise

Take an illustrative Indian software founder who is advised to set up a low-tax foreign company to hold the product's intellectual property. The proposed entity would have no staff, and all development would continue in Bengaluru.

On review, the practitioner points out that the arrangement is likely to be challenged under anti-avoidance rules and may offer little benefit as global minimum tax rules spread. The founder keeps the IP in India, claims the domestic incentives available and avoids years of uncertainty and fees.

The objection we hear most - and our response

The objection: "A global minimum tax undercuts the right of developing countries to use low taxes to attract investment. It mainly benefits rich nations."

The answer: That is a serious debate, and many developing-country voices have made the point. Supporters reply that QDMTTs let low-tax countries collect the top-up themselves rather than ceding it to the parent's jurisdiction, and that the substance exclusion protects genuine investment in plants and jobs. Critics answer that the rules are complex and the gains uneven. For clients, the practical advice is identical either way: plan on substance, not on rate arbitrage.

Practitioners' FAQ

"Does Pillar Two apply to an Indian company with Rs. 500 crore turnover?"

Only if it is part of a multinational group with consolidated revenue of EUR750 million or more. Standalone mid-sized companies are not directly covered.

"Where does India stand on implementation?"

India participates in the Inclusive Framework. Track Indian legislation and CBDT guidance directly, as implementation choices continue to evolve.

"Is the minimum rate the same as the statutory rate?"

No. It is an effective rate calculated under special rules, which can differ significantly from headline rates.

Position as at October 2026: The GloBE rules apply to groups with revenue of EUR750 million or more; many jurisdictions have legislated QDMTTs and IIRs from 2024-2025; the January 2026 side-by-side package exempts qualifying US-parented groups from IIR and UTPR. India's Income-tax Act, 2025 took effect on 1 April 2026. This area changes frequently - follow OECD and national guidance.

Action points by client type

Clients within a large multinational group:

• Map entities and effective rates by jurisdiction.
• Check that the data needed for GloBE calculations exists and can be produced on time.
• Re-evaluate incentives for continued value.
• Follow domestic minimum tax laws in each country, along with the side-by-side rules.

Mid-sized clients and their advisers:

• Understand how incentives in target countries are changing.
• Build genuine substance into international structures.
• Tighten transfer pricing and documentation.
• Expect customers, lenders and investors to ask more about tax transparency.

Pitfalls

• Assuming low-tax structures will keep delivering their old benefits.
• Choosing locations on headline rates alone.
• Dismissing Pillar Two as a big-company issue in long-range planning.
• Overlooking how incentives interact with minimum tax rules.

Terms explained

• Pillar Two - the OECD/G20 framework setting a 15% minimum tax for large multinational groups.
• Effective tax rate - tax paid as a proportion of profit before tax.
• Substance - real employees, assets and decision-making in the place where an entity is based.

Half-hour action exercise

For any client entity outside India - existing or planned - answer three questions:

1. What genuinely happens there: how many people, which assets, what decisions?

2. If the tax advantage vanished tomorrow, would the entity still make commercial sense?

3. Does the transfer pricing reflect where the work is really done?

If question 2 gets an honest "no," discuss restructuring with the client before the rules make the decision for them.

Summary for busy professionals

• The Apple-Ireland state aid ruling and the 2021 global agreement signalled the end of unrestricted tax competition for large groups.
• Pillar Two imposes a 15% minimum effective rate on groups with revenue of EUR750 million or more, enforced through QDMTTs, IIRs and UTPRs.
• The January 2026 side-by-side package exempts qualifying US-parented groups from IIR and UTPR; domestic minimum taxes still apply.
• Incentives, substance, subsidiary reporting and location choices are shifting - affecting businesses well beyond those in scope.
• Advise on substance, not rate arbitrage.

Increasingly, where a group pays tax will depend on where it actually does business.

References

• Court of Justice of the European Union, Commission v. Ireland and Apple (C-465/20 P), judgment of 10 September 2024.
• OECD/G20 Inclusive Framework, Statement on a Two-Pillar Solution (8 October 2021). oecd.org
• OECD, Tax Challenges Arising from the Digitalisation of the Economy - Global Anti-Base Erosion Model Rules (Pillar Two) (2021) and related administrative guidance, including the side-by-side package (January 2026).
• Gabriel Zucman, The Hidden Wealth of Nations (University of Chicago Press, 2015).