Direct Tax Laws & International Taxation · Latest Developments in International Taxation

Pillar One and Pillar Two (Global Minimum Tax) for CA Final

Updated 5 October 2026 · Fact-checked

Pillar One and Pillar Two are the OECD/G20 two-pillar solution to taxing the digital economy. Pillar One reallocates part of the profit of very large multinationals to market jurisdictions (Amount A). Pillar Two sets a 15% global minimum tax through GloBE rules: QDMTT, IIR and UTPR. Solve questions by finding the group, the jurisdiction's ETR, the top-up tax and who collects it.

Understand Pillar One and Pillar Two (Global Minimum Tax)

Old treaty rules tax profit where a business has a physical presence (a permanent establishment). Digital businesses can earn large revenue from a country without any presence there. Also, groups can shift profit to low-tax countries. The two-pillar solution, developed by the OECD/G20 Inclusive Framework, answers both problems.

Pillar One is about *where* tax is paid. It aims to give market jurisdictions (where customers are) a taxing right over a share of the residual profit of the very largest and most profitable multinational groups. This share is called Amount A. It is meant to work without needing a physical presence. A simpler fixed return for baseline marketing and distribution activity is called Amount B. Pillar One needs a multilateral convention to take effect, and its adoption has been slow and uncertain. Always say that its status is evolving, and do not state that it is in force.

Pillar Two is about *how much* tax is paid. It aims to ensure large multinational groups pay at least a 15% effective tax rate in every jurisdiction where they operate. It applies to groups with consolidated revenue of at least EUR 750 million (the same threshold as country-by-country reporting). The rules are called the Global Anti-Base Erosion (GloBE) rules. They are a common approach: countries are not obliged to adopt them, but if they do, others agree to respect them.

The mechanism is simple. For each jurisdiction, compute the effective tax rate (ETR) = covered taxes ÷ GloBE income. If ETR is below 15%, there is a shortfall. The tax needed to bring it to 15% is the top-up tax, charged on the excess profit (GloBE income after the substance-based income exclusion). Three tools collect it:

The Qualified Domestic Minimum Top-up Tax (QDMTT) is applied first. It is charged by the low-tax country itself, and the amount paid is credited against the top-up tax that would otherwise be collected under the IIR or UTPR.
The Income Inclusion Rule (IIR) then applies top-down in the ownership chain. The parent entity's country (where it has adopted the IIR) collects the top-up tax on low-taxed subsidiaries that is not already covered by the QDMTT.
The Undertaxed Profits Rule (UTPR) is the backstop for any top-up tax that remains after the QDMTT and IIR. It is collected by denying deductions or making an equivalent adjustment in the group's UTPR jurisdictions. The remaining top-up tax is allocated among those jurisdictions by a formula based on employees and tangible assets.

There is also the Subject to Tax Rule (STTR), a treaty-based rule allowing source countries to tax certain related-party payments (such as interest and royalties) taxed below a minimum rate (9%) in the recipient country.

For India, the Equalisation Levy was the earlier response to digital taxation. India introduced a 6% levy on specified services (such as online advertising) and a 2% levy on e-commerce supply or services. Both have been rolled back: the 2% levy from 1 August 2024 and the 6% levy from 1 April 2025. India has also relied on the significant economic presence provisions in section 9 to tax digital businesses. The Pillar work links to your study of the digital economy and BEPS. Check the latest ICAI study material for what India has notified; do not assume India has enacted GloBE legislation.

Key rules to remember

Effective Tax Rate (jurisdictional): ETR = Adjusted covered taxes of the jurisdiction ÷ Net GloBE income of the jurisdiction; Computed jurisdiction by jurisdiction, not entity by entity, and not for the whole group.
Top-up tax percentage: Top-up tax % = 15% − ETR (if ETR is below 15%); No top-up tax if ETR is 15% or more.
Jurisdictional top-up tax: Top-up tax = Top-up tax % × Excess profit, where Excess profit = Net GloBE income − Substance-based income exclusion; The substance-based income exclusion is a carve-out based on payroll and tangible assets in the jurisdiction. It reduces GloBE income to excess profit, and top-up tax is computed on that excess profit. Add any additional current top-up tax if relevant.
Pillar Two threshold: Consolidated group revenue ≥ EUR 750 million in at least two of the four preceding years; Applies to the multinational group. Test as set out in the OECD model rules.
Order of collection: QDMTT (applied first and credited) → IIR (top-down) → UTPR (backstop); The QDMTT reduces the top-up tax left for the IIR and UTPR. The IIR applies top-down from the parent. The UTPR collects any remaining top-up tax, allocated among UTPR jurisdictions by a formula based on employees and tangible assets.
Minimum rate: GloBE minimum rate = 15%; STTR minimum rate = 9%; Do not mix the two rates.
Amount A: Share of residual profit reallocated to market jurisdictions; Targets the very largest and most profitable groups. Do not quote a fixed percentage unless the question gives one.

How to solve Pillar One and Pillar Two (Global Minimum Tax) questions

Use this sequence for both theory and case questions on the two pillars.

1Identify which pillar the question is about. Reallocation of taxing rights to market countries is Pillar One; a minimum tax rate is Pillar Two.
2Check if the group is in scope: consolidated revenue of EUR 750 million or more (and, for Pillar One, the very large, highly profitable group test given in the question).
3For Pillar Two, group the entities by jurisdiction and compute the ETR as covered taxes ÷ GloBE income for each jurisdiction.
4If ETR is below 15%, compute the top-up tax percentage (15% − ETR) and apply it to GloBE income after any substance-based income exclusion (the excess profit).
5Decide who collects: QDMTT first if the low-tax country has one (it is credited); then the IIR applies top-down from the parent's country; any remaining top-up tax goes to the UTPR in other group countries, allocated by employees and tangible assets.
6State the effect on India or the group: for example, tax competition falls, incentives with low ETR may lose benefit, and India's digital taxation position (the rolled-back equalisation levy and section 9 significant economic presence) is seen in a new light.
7Conclude in provision-facts-conclusion form with the rule, application to the facts, and the answer.

Quickest way: Three-line GloBE check

When to use it: Use when a numerical or case MCQ gives you the group's profit and tax for one jurisdiction and asks for top-up tax or who pays.

Check scope: revenue of at least EUR 750 million? If no, stop: no GloBE tax.
ETR = tax ÷ profit. If 15% or more, top-up tax is nil.
Top-up = (15% − ETR) × profit after any exclusion given. Then pick the collector: QDMTT first, then IIR, then UTPR for any remainder.

Common mistakes in Pillar One and Pillar Two (Global Minimum Tax)

Treating Pillar One and Pillar Two as the same thing.
Both are parts of one OECD package on the digital economy.
Fix: Pillar One = reallocation of profit to market countries (Amount A). Pillar Two = 15% minimum tax (GloBE). Memorise this one-line split.
Applying the 15% rate to the whole group or entity by entity.
Students assume one group-wide rate.
Fix: Compute the ETR jurisdiction by jurisdiction. Blend all entities in one country, then compare with 15%.
Saying UTPR applies first, or confusing IIR and UTPR.
Both names sound alike and both collect top-up tax.
Fix: IIR works at parent level on low-taxed subsidiaries. UTPR is the backstop, applied in other countries by denying deductions or equivalent adjustment, only for the top-up tax left after the QDMTT and IIR.
Forgetting the EUR 750 million threshold.
Focus stays on the 15% rate.
Fix: Always test scope first. A group below the threshold is outside GloBE rules.
Stating that Pillar One is in force or that India has enacted GloBE rules.
Notes written with confidence about proposals.
Fix: Describe Pillar One as an agreed design needing a multilateral convention. For India, state what the question or ICAI material says and do not assume enactment.
Mixing the 9% STTR rate with the 15% GloBE rate.
Both are minimum tax rates.
Fix: STTR is a treaty rule on specified related-party payments at 9%. GloBE is a 15% jurisdictional ETR test.

Worked examples

Example 1

A multinational group reports in euros and has consolidated revenue of EUR 900 million in each of the last four years. Its subsidiaries in Country X together have net GloBE income of EUR 200 million and adjusted covered taxes of EUR 20 million. Country X has no domestic minimum top-up tax. The substance-based income exclusion is EUR 40 million. The parent is in a country that has adopted the IIR. Find the top-up tax and who collects it.

Show the solution

Scope: revenue of EUR 900 million is at least EUR 750 million, so the group is within GloBE rules.
ETR of Country X = 20 ÷ 200 = 10%.
ETR is below 15%, so top-up tax percentage = 15% − 10% = 5%.
Excess profit = 200 − 40 = EUR 160 million.
Top-up tax = 5% × 160 = EUR 8 million.
Collector: Country X has no QDMTT, so the parent's country collects under the IIR.

Answer: Top-up tax is EUR 8 million, collected by the parent's jurisdiction under the IIR.

Example 2

A group is in scope of GloBE rules. Its subsidiary in Country Y has an ETR of 12%. Country Y has no QDMTT. The parent's country has not adopted the IIR. Other group entities are in Country Z, which has adopted the UTPR. What happens, and why does a student need to know the order of rules?

Show the solution

Group is in scope, and Country Y's ETR of 12% is below 15%, so a top-up tax arises (3% on excess profit).
Step one: QDMTT. Country Y has none, so nothing is collected and nothing is credited.
Step two: IIR. The parent's country has not adopted it, so no collection at parent level.
Step three: UTPR is the backstop. Country Z has adopted it, so it can collect its allocated share of the top-up tax (the allocation is by a formula based on employees and tangible assets) by denying deductions or making an equivalent adjustment for the group entities in Z.
Conclusion: the top-up tax is not lost; the UTPR picks up the amount left after the QDMTT and IIR.

Answer: The UTPR in Country Z collects its allocated share of the uncollected top-up tax as a backstop, because neither QDMTT nor IIR applied.

Exam tips

Write the one-line split first: Pillar One reallocates profit to market countries; Pillar Two ensures a 15% minimum tax. It earns marks in short notes.
For numerical MCQs, always test scope, then ETR, then top-up. Use only the figures and exclusions given in the question.
In theory answers, name the rules in order: QDMTT, IIR, UTPR, and explain IIR vs UTPR in one line each. Mention that the UTPR is allocated by employees and tangible assets.
Link the answer to India: the equalisation levy (6% on specified services, 2% on e-commerce) has been rolled back, the 2% from 1 August 2024 and the 6% from 1 April 2025, and India has also relied on significant economic presence in section 9. Add tax incentives that lower ETR. Do not claim GloBE enactment without support.
Use provision-facts-conclusion form so each case answer shows rule, application and result.

Practice questions from Latest Developments in International Taxation

Pillar One and Pillar Two (Global Minimum Tax): frequently asked questions

What is the difference between Pillar One and Pillar Two?

Pillar One reallocates part of the profit of the largest multinationals to market jurisdictions through Amount A. Pillar Two sets a 15% minimum effective tax rate through GloBE rules. One decides where tax is paid, the other decides how much.

How do IIR and UTPR work in Pillar Two?

Under the IIR, the parent entity's country charges top-up tax on the low-taxed profits of group entities abroad, applied top-down in the ownership chain. The UTPR is a backstop: if top-up tax is still uncollected after the QDMTT and IIR, other group countries deny deductions or make an equivalent adjustment to collect it, with the amount allocated by a formula based on employees and tangible assets.

Which groups are covered by GloBE rules?

Multinational groups with consolidated revenue of at least EUR 750 million in at least two of the four preceding years. Smaller groups are outside the rules.

What is the impact of the two-pillar solution on India?

It reduces the room for low-tax incentives and profit shifting. India's equalisation levy (6% on specified services and 2% on e-commerce) has been rolled back, the 2% from 1 August 2024 and the 6% from 1 April 2025, and India has also relied on significant economic presence provisions in section 9. Follow the ICAI study material for what India has actually notified.