The OECD/G20's Pillar Two initiative is reforming global tax norms by introducing a global minimum tax rule.

This initiative establishes a minimum effective tax rate of 15%, applying a 'top-up tax' on profits shifted to low-tax jurisdictions.

Historically, multinationals have shifted profits to low-tax jurisdictions, contributing to a decline in global average tax rates from around 40% in 1980 to just over 23% in 2020.

Pillar Two aims to align individual countries' economic interests with international tax cooperation, particularly targeting profit shifting by multinationals.

This shift reflects a new understanding that national interests can coexist with international tax alignment, prompting low-tax jurisdictions to become more active tax administrators.

Low-tax countries are incentivized to adopt the qualified domestic minimum top-up tax (QDMTT) to retain tax revenues domestically instead of losing them to higher-tax jurisdictions.

While the minimum tax may limit profit shifting, it could also intensify competition for real investments through other incentives like grants or subsidies.

Pillar Two focuses on taxing excess profits while excluding routine returns, redistributing taxing rights fairly without stifling genuine economic activity.

Multinationals must adapt their strategies to include robust assessments of Pillar Two impacts, effective tax rate forecasting, and transparent transfer pricing models.

Coordination with tax accounting teams is essential to ensure compliance with Pillar Two while presenting comprehensive financial disclosures.

Transfer pricing must align with the new global minimum tax dynamics, necessitating a reassessment of existing models to avoid triggering top-up taxes due to low effective rates.

The evolving global tax landscape requires multinationals to rethink how profit, policy, and purpose intersect, focusing on sustainable and compliant structures.