What is OECD Pillar Two
OECD Pillar Two is part of the global tax reform under the OECD/G20 Inclusive Framework on BEPS, aimed at ensuring that large multinational enterprise (MNE) groups are subject to a global minimum effective tax rate (ETR) of 15%, regardless of where they operate. The core objective is to reduce incentives for profit shifting to low-tax jurisdictions and to establish a more level international tax playing field.
Pillar Two introduces a coordinated set of rules, collectively referred to as the Global Anti-Base Erosion (GloBE) Rules, that determine whether an MNE has paid at least the minimum 15% effective tax in each jurisdiction. These include:
- Income Inclusion Rule (IIR): Allows the parent entity to collect a “top-up tax” when a subsidiary is taxed below 15%.
- Undertaxed Payments Rule (UTPR): Acts as a backstop to the IIR, allocating top-up tax to other jurisdictions when the IIR cannot be applied.
- Qualified Domestic Minimum Top-Up Tax (QDMTT): Allows countries to impose their own domestic top-up tax to ensure local profits reach the 15% rate before foreign jurisdictions apply the IIR or UTPR.
- Extensive compliance and reporting requirements, including country-by-country calculations of income, taxes, and adjustments.
Pillar Two generally applies to multinational groups with global consolidated revenues of at least EUR 750 million.
Brazil adopted a Qualified Domestic Minimum Top-up Tax (QDMTT) under Law No. 15,079/2024. The QDMTT is imposed as an additional rate of 15% on the Social Contribution on Net Profit (CSLL) and its law aligns closely with the OECD GloBE (Global Anti-Base Erosion) rules. Hence, the company must calculate the GloBE profit and, if the minimum taxation is not met, the additional CSLL rate applies.
A new global landscape for transfer pricing
The implementation of OECD Pillar Two is profoundly transforming the international tax environment. For multinational companies, the impacts go far beyond tax calculations: they affect transfer pricing policies, tax governance, corporate structure, and operational transparency.
While the goal is to curb aggressive tax planning, the rules directly affect transfer pricing because:
– The allocation of profits across jurisdictions now directly affects the Effective Tax Rate (ETR).
– Structures located in low-tax jurisdictions may trigger top-up taxes.
– Local tax incentives may no longer provide the same benefit to multinational groups.
– Substance and economic presence requirements become more decisive.
As a result, transfer pricing policies — traditionally focused on margins and methods — now operate within a new global regulatory framework.
Key Impacts of Pillar Two on Transfer Pricing
1. Review of TP margins and methods
Structures using very low margins for subsidiaries in low-tax countries may create:
- ETR below 15 percent,
- need for top-up tax payments,
- increased exposure to stricter audits.
Companies will need to reassess:
- traditional TP methods (CUP, Cost Plus, TNMM),
- internal cost-allocation policies,
- impacts on jurisdictional profitability.
2. Increased transparency and documentation requirements
Pillar Two reinforces the importance of consistent and standardized reporting, including:
– Country-by-Country Reporting (CbCR),
– financial statements adjusted to GloBE Income,
– mandatory reconciliations between accounting and tax data.
Inconsistencies between TP documentation and GloBE calculations may result in significant risks, penalties, and reclassifications.
3. Need to evaluate tax incentives and special regimes
Tax incentives — such as Special Zones, state tax credits, and innovation regimes — may affect the ETR and trigger top-up tax.
Analysis must consider:
- compatibility of local incentives with GloBE rules,
- risk of a tax benefit being neutralized by top-up tax,
- impact on the company’s global strategy.
4. Restructuring of global value chains and business functions
Compliance with the global minimum tax may require:
– relocation of risk-taking and decision-making functions,
– revision of intercompany agreements,
– changes to IP (intellectual property) ownership location,
– adjustments to principal entity models.
Alignment between function, risk, and economic substance becomes even more critical.
What Global Companies Should Prepare Now
1. Diagnose the global ETR and identify critical jurisdictions
Priority actions include mapping:
- ETR by country,
- jurisdictions at risk of top-up tax,
- impacts on subsidiaries under special tax regimes.
2. Review Transfer Pricing policies
It is essential to review:
- applied margins,
- economic justification,
- available documentation,
- impacts on taxable income.
3. Align accounting and tax functions
GloBE calculations require a standardized set of financial data.
Without strong integration between departments, the risk of inconsistencies increases significantly.
4. Strengthen governance for intercompany decisions
With more dynamic audits and simultaneous demands from multiple jurisdictions, companies must enhance:
- internal controls,
- formal TP policies,
- global compliance calendars,
- continuous ETR monitoring.
5. Develop long-term strategic planning
Implementation of Pillar Two is not just an operational adjustment — it is a global shift requiring strategic vision.
Critical questions include:
- Do our corporate structures still make sense?
- Will tax incentives remain effective?
- Is the global allocation of functions aligned with the new environment?
How Drummond Advisors Can Support Your Company
Drummond Advisors works alongside multinational groups, offering comprehensive support in:
– Transfer Pricing,
– ETR modeling and diagnostics under Pillar Two,
– adjustments to transfer pricing policies,
– compliance, documentation, and multilateral reporting,
– corporate reorganization and global restructuring,
– tax–accounting integration to meet GloBE requirements.
Our team is prepared to guide your company through adaptation to the new international landscape and ensure compliance, efficiency, and legal security.
Conclusion
The introduction of OECD Pillar Two represents one of the most significant regulatory milestones in international taxation, and its impact on transfer pricing is substantial. Companies that act early – adjusting policies, reviewing structures, and strengthening tax governance – will be better positioned to operate safely in the global environment emerging from 2025 onward.
Written by Marcos Ferreira, Content Analyst at Drummond Advisors, and Hanna Lauar, Associate Attorney at Drummond Advisors