Pillar Two Global Minimum Tax: A Mid-Market Primer

The Pillar Two global minimum tax is an OECD-led framework that requires large multinational enterprise (MNE) groups with annual consolidated revenue of at least EUR 750 million to pay a minimum effective tax rate (ETR) of 15% on profits in every jurisdiction where they operate. When a company’s local ETR falls below that floor, a “top-up tax” is triggered to close the gap. Pillar Two rules began taking effect in most participating countries for fiscal years starting on or after December 31, 2023, and the first formal GloBE Information Return (GIR) filings for calendar-year taxpayers came due by June 30, 2026.

If your company sits below the EUR 750 million revenue threshold today, Pillar Two does not directly apply to you. But the rules are reshaping how tax departments collect data, how auditors verify jurisdictional-level financials, and what foreign counterparties and investors will expect from your organization. Understanding the framework now positions finance leaders to avoid surprises as they scale.

What Is the Pillar Two Global Minimum Tax?

Pillar Two is one half of the OECD/G20 Inclusive Framework’s “Two-Pillar Solution” to international tax reform. Pillar One addresses how taxing rights over large digital businesses are allocated across countries. Pillar Two targets profit-shifting by ensuring that wherever a large MNE books income, it pays at least 15 cents of tax per dollar of profit.

The OECD released the GloBE Model Rules in December 2021. More than 140 member jurisdictions of the Inclusive Framework have committed to the framework. The European Union implemented the rules via directive, and major economies including the UK, Canada, Australia, Japan, South Korea, and most of the EU began applying Pillar Two taxes in 2024. As of mid-2026, the framework is active in well over 50 jurisdictions, with others at draft or consultation stage.

The Revenue Threshold and Who It Reaches

To come within scope, an MNE group must have had annual revenue of EUR 750 million or more in at least 2 of the 4 fiscal years preceding the relevant year, as reflected in the ultimate parent entity’s (UPE) consolidated financial statements. That threshold is denominated in euros, so dollar-denominated groups need to convert. At current exchange rates, roughly $820-830 million in consolidated revenue is the approximate US dollar equivalent, though the formal test is always EUR-based.

Groups below that revenue line are out of scope for direct GloBE liability. However, a US company with a parent, a PE sponsor, or a joint-venture partner that is itself part of a larger in-scope group may face indirect compliance involvement, including data requests and ETR calculations at the subsidiary or constituent entity level.

How the Pillar Two Rules Work

Pillar Two operates through three interlocking charging rules. Understanding each one helps finance leaders identify where exposure or compliance complexity actually arises.

Income Inclusion Rule (IIR)

The IIR is the primary charging rule. It requires the ultimate parent of an MNE group to pay a top-up tax on the low-taxed income of any constituent entity whose jurisdictional ETR falls below 15%. The ETR is calculated on a jurisdiction-by-jurisdiction basis using a modified profit figure called GloBE Income and a modified tax figure called Covered Taxes. The result is a single ETR per country, not per entity.

Undertaxed Profits Rule (UTPR)

The UTPR is the backstop rule. It applies when the IIR fails to collect the full top-up tax, either because the UPE’s home jurisdiction has not enacted the IIR or because the group has no parent in a participating country. The UTPR allocates remaining top-up tax across other jurisdictions in which the group operates, using a formula based on employees and assets in those countries.

Qualified Domestic Minimum Top-Up Tax (QDMTT)

A QDMTT is a domestic top-up tax enacted by a country in conformity with GloBE rules. It allows a country to collect the top-up tax on low-taxed local profits before a foreign IIR or UTPR can reach them. Many jurisdictions, including EU member states and the UK, have enacted QDMTTs. From a US company’s standpoint, a US subsidiary’s host country may collect a QDMTT on that subsidiary’s local profits even if the US parent is not itself subject to GloBE rules.

Safe Harbors and the Transitional Period

The OECD introduced transitional safe harbors to ease the compliance burden while systems and data infrastructure are being built. The most significant is the Country-by-Country Report (CbCR) safe harbor, which allows groups to use simplified CbCR data instead of full GloBE calculations during a transitional period. Originally, that safe harbor was set to expire for fiscal years beginning on or after January 1, 2027, after which groups would need fully operational GloBE ETR computation systems.

The OECD’s January 2026 Side-by-Side Package extended the transitional CbCR safe harbor by one additional year. It now covers fiscal years beginning on or before December 31, 2027, provided those years do not end after June 30, 2029. The package also introduced a permanent Simplified ETR Safe Harbour that generally applies for fiscal years starting on or after January 1, 2027, with limited early application in 2026. As of 2026, the practical planning horizon for full GloBE computation capability has therefore shifted one year later than the original transitional design.

For detailed current technical guidance, the OECD’s Global Anti-Base Erosion Model Rules page is the authoritative source.

The US Position: GILTI, OBBBA, and the Side-by-Side Agreement

The United States has not enacted Pillar Two domestically and has made its opposition to several Pillar Two mechanisms explicit. On his first day in office in January 2025, President Trump issued an executive order directing that Pillar Two has “no force or effect” in the United States and instructing Treasury to push back against extraterritorial application of the rules to US-headquartered companies.

On January 5, 2026, Treasury Secretary Scott Bessent announced the OECD Side-by-Side Safe Harbor package, an agreement reached with more than 145 participating countries in the OECD/G20 Inclusive Framework. The package created a new Side-by-Side Safe Harbor (SbS Safe Harbor) that lets an MNE group headquartered in a qualifying jurisdiction elect full exemption from the IIR and the UTPR. As of January 5, 2026, the US is the only jurisdiction added to the OECD’s Central Record as meeting that eligibility standard.

Under the SbS Safe Harbor, effective for fiscal years beginning on or after January 1, 2026, US-headquartered MNEs remain subject to QDMTTs in the foreign countries where they operate. They are no longer exposed to top-up taxes imposed by third-country IIR or UTPR rules on their global income.

GILTI and NCTI Under the OBBBA

The US already imposes a minimum tax on foreign income through the Global Intangible Low-Taxed Income (GILTI) regime, enacted in 2017. The One Big Beautiful Bill Act (OBBBA), signed into law in 2025, significantly modified that regime, renaming it Net CFC-Tested Income (NCTI) effective for taxable years beginning after December 31, 2025.

Under the NCTI framework:

• The US effective tax rate on foreign low-taxed income rises to approximately 14%, making it closer in floor to the Pillar Two 15% standard than the prior GILTI regime.
• The tangible asset exemption (QBAI) that reduced the GILTI base under the old rules has been repealed.
• Foreign tax credit utilization for NCTI income increased from an 80% haircut to a 90% credit allowance.

The OECD and the US argued that the NCTI regime, combined with the SbS Safe Harbor agreement, renders the US system substantively equivalent to Pillar Two in its global minimum tax coverage, even if the architecture differs. Other participating countries accepted this framing in agreeing to the SbS Safe Harbor.

What This Means for US-Headquartered Groups

For a US parent company with foreign subsidiaries, the practical effect as of 2026 is:

• No US GloBE top-up tax collected at the federal level on the group’s foreign low-taxed income (NCTI replaces that function).
• Foreign subsidiaries operating in countries with enacted QDMTTs may still owe top-up tax locally in that jurisdiction.
• The US parent is protected from IIR charges by other countries’ tax authorities and from UTPR charges on US-source income.
• First-time GIR filing obligations may arise in foreign jurisdictions where the group has constituent entities, depending on local law.

Companies with foreign operations at or approaching the EUR 750 million threshold should consult tax advisors before assuming the SbS Safe Harbor fully eliminates all Pillar Two compliance exposure. The safe harbor requires affirmative election, and local QDMTT obligations in each jurisdiction must be evaluated separately.

Modus’s advisory services team works with mid-market finance leaders on international tax posture and cross-border compliance readiness.

Accounting and Financial Reporting Implications

Pillar Two does not only affect tax departments. Finance teams preparing financial statements under US GAAP need to understand how top-up tax obligations are reflected.

US GAAP Treatment: No Deferred Tax Recognition

In 2023, the FASB staff concluded that for US GAAP purposes, the minimum tax described in the Pillar Two GloBE rules is an alternative minimum tax under ASC 740. The practical effect: companies do not recognize or adjust deferred tax assets and liabilities for the estimated future effects of Pillar Two top-up taxes. Instead, any Pillar Two top-up tax is accounted for as a period cost, impacting the effective tax rate in the year the obligation arises.

IFRS reporters (IAS 12) follow a similar exception introduced by the IASB in 2023, also treating Pillar Two as a period cost with no deferred tax recognition.

Disclosure Considerations

There are no mandatory US GAAP disclosure requirements specific to Pillar Two, but the SEC and financial statement users increasingly expect transparency. If potential top-up tax amounts are material or reasonably likely to become so, disclosures in the MD&A or income tax footnote are appropriate. For companies approaching the EUR 750 million threshold, boards and audit committees should ask whether the tax footnote adequately addresses GloBE exposure.

FASB’s ASU 2023-09 on income tax disclosures, effective for public business entities for fiscal years beginning after December 15, 2024 (calendar-year 2025), and for non-public entities one year later, requires enhanced rate reconciliation and income tax payments disaggregation. That more granular disclosure framework will make jurisdictional-level tax data more visible, an additional reason to build the underlying data infrastructure that Pillar Two compliance also demands.

Our audit and assurance team helps companies assess whether their income tax disclosures and provision processes are keeping pace with evolving requirements.

What Mid-Market Companies Should Do Now

Most mid-market businesses in the US today fall below the EUR 750 million Pillar Two threshold. That does not mean the framework is irrelevant. The forces Pillar Two has set in motion, jurisdictional-level tax transparency, data traceability, and country-by-country reporting infrastructure, are becoming baseline expectations for any company with international operations, regardless of size.

Steps Finance Leaders Should Take

Confirm threshold status. Calculate consolidated group revenue for the past 4 fiscal years in euros. If your group is approaching EUR 750 million, begin detailed scoping of which entities and jurisdictions are in scope, and whether any holding structure changes affect applicability.

Map your foreign footprint. Even companies well below the GloBE threshold may have subsidiary entities in jurisdictions where QDMTT or local minimum tax obligations arise through other mechanisms. A current-state map of legal entities and their home jurisdictions is foundational.

Assess data readiness. GloBE ETR calculations require granular, jurisdictional-level financial data that many ERP and consolidation systems do not produce automatically. With the transitional CbCR safe harbor now extended through fiscal years beginning on or before December 31, 2027, in-scope groups have a bit more runway, but they will still need full GloBE computation capability once it lapses. Building data infrastructure now is cheaper than emergency remediation later.

Engage advisors before significant transactions. Cross-border acquisitions, new market entries, and restructurings all carry potential Pillar Two implications. M&A due diligence should include a Pillar Two threshold and ETR impact analysis, particularly for PE-backed companies aggregating revenue across portfolio companies under common ownership.

Monitor legislative developments. The SbS Safe Harbor and NCTI regime are new. Technical guidance will continue to be issued by the OECD, Treasury, and the IRS. Any change in how the SbS Safe Harbor is administered or challenged by other countries could affect the practical protection it provides.

Related reading: OBBBA Tax Changes for Private Equity Deals: What You Need to Know

Frequently Asked Questions

What is the Pillar Two global minimum tax?

Pillar Two is an OECD framework requiring large multinational enterprise groups with annual consolidated revenue of EUR 750 million or more to pay a minimum effective tax rate of 15% on profits in each country where they operate. When the local effective rate falls below 15%, a top-up tax is charged to bring the total to that floor.

Does Pillar Two apply to US companies?

It depends on the company’s revenue and structure. The US is not participating in Pillar Two domestically and has secured a Side-by-Side Safe Harbor for US-headquartered groups under the January 2026 OECD agreement. However, US companies with foreign subsidiaries in countries that have enacted Qualified Domestic Minimum Top-Up Taxes may still owe top-up tax locally in those jurisdictions on their local profits.

What is the EUR 750 million threshold, and how is it measured?

The threshold is EUR 750 million in annual consolidated revenue, measured at the group level using the ultimate parent entity’s consolidated financial statements. A group must have exceeded that threshold in at least 2 of the 4 fiscal years immediately preceding the relevant year to be in scope. Revenue below that level places a group outside direct GloBE liability, though indirect compliance involvement is possible.

How does Pillar Two affect financial statement accounting?

Under US GAAP (ASC 740) and IFRS (IAS 12), companies do not record deferred tax assets or liabilities for Pillar Two top-up taxes. The taxes are treated as a period cost, recognized in the year the obligation arises. Enhanced income tax disclosures under FASB ASU 2023-09 will make jurisdictional tax data more visible starting in 2025 for public entities and 2026 for non-public entities.

What is a QDMTT and does it affect US subsidiaries?

A Qualified Domestic Minimum Top-Up Tax (QDMTT) is a domestic top-up tax enacted by a foreign country in conformity with GloBE rules. Countries like the UK, Germany, and other EU member states have enacted QDMTTs. A US company’s subsidiary located in one of those countries may owe QDMTT to that country on the subsidiary’s local profits if the subsidiary’s local ETR falls below 15%, regardless of whether the US parent is subject to Pillar Two.

What is the GloBE Information Return, and when is it due?

The GloBE Information Return (GIR) is the standardized filing document through which in-scope MNE groups report jurisdictional ETR calculations, top-up tax liability, and related data to tax authorities. For calendar-year taxpayers whose first in-scope year was fiscal year 2024, the first GIR filings were due by June 30, 2026, reflecting the 18-month initial filing extension provided under the OECD’s transitional rules.