Introduction
The OECD’s BEPS 2.0 project introduces two major pillars Pillar One and Pillar Two designed to modernize global taxation in a digitalized world.
However, for most multinationals, the two pillars feel like a maze of formulas, thresholds, and overlapping rules.
This article breaks down Pillar One vs Pillar Two in a simple, practical way, highlighting what each pillar does, how they differ, and what multinationals should prepare for.
1. What Is Pillar One?
Pillar One reallocates a portion of large multinationals’ global residual profits to the countries where their customers or users are located even if the MNE has no physical presence there.
Who Is in Scope?
Global revenue > €20 billion
Profit margin > 10%
Applies mainly to large consumer-facing multinationals and digital giants
What Pillar One Does
It gives “market jurisdictions” (the countries where customers are) the right to tax part of the multinational’s profits — known as Amount A.
Key Concept
Taxation based on “market presence,” not physical presence.
2. What Is Pillar Two?
Pillar Two introduces the Global Minimum Tax (GMT) of 15% to ensure that large multinational groups pay at least this minimum ETR in each jurisdiction they operate in.
Who Is in Scope?
Multinationals with revenue ≥ €750 million
Main Pillar Two Rules
IIR (Income Inclusion Rule)
UTPR (Undertaxed Payments Rule)
QDMTT (Domestic Top-Up Tax)
What Pillar Two Does
If a country taxes less than 15%, a top-up tax is applied — either by:
The parent company’s jurisdiction
Other jurisdictions
Or the low-tax country itself through QDMTT
Key Concept
No jurisdiction should offer an effective tax rate below 15% for in-scope groups.
3. Pillar One vs Pillar Two Key Differences Simplified
| Feature | Pillar One | Pillar Two |
|---|---|---|
| Purpose | Redistribute profits to market countries | Ensure minimum 15% ETR |
| Focus | Where profits are taxed | How much tax is paid |
| Target | Large, highly profitable MNEs | All large MNEs (€750m+) |
| Key Mechanism | Amount A (market allocation) | Top-up tax rules |
| Driver | Digitalization | Tax fairness / anti-base erosion |
| Impact | More countries claim taxing rights | Increased global tax bills & reporting |
4. How the Two Pillars Interact
Even though Pillar One and Pillar Two are separate frameworks, they are linked in practice:
1. Both aim to limit profit shifting
Pillar One prevents shifting profits to low-presence jurisdictions.
Pillar Two prevents shifting profits to low-tax jurisdictions.
2. Both require advanced data and TP alignment
MNEs must:
Track revenue by market (Pillar One)
Track ETR by jurisdiction (Pillar Two)
Align intercompany pricing and documentation
3. Both increase tax reporting complexity
Between Pillar One reallocation and Pillar Two top-up taxes, compliance requirements will dramatically expand.
5. Practical Implications for Multinationals
5.1 More Tax Paid in More Countries
Pillar One expands the number of jurisdictions entitled to tax a share of profits.
Pillar Two ensures ETR does not fall below 15%.
5.2 Need for Accurate, Granular Data
Companies must:
Map customer revenue per country
Compute GloBE ETRs
Integrate tax and finance systems for reporting
5.3 Transfer Pricing Must Be More Robust
Tax authorities will scrutinize:
Value creation
Substance
IP structures
Intercompany services and royalties
5.4 Complex Internal Governance Needed
Multinationals need:
Clear ownership of tax data
Cross-functional coordination
Policy alignment across business units
6. What Multinationals Should Do Now
1. Conduct a Pillar One & Two Readiness Assessment
Identify where exposure exists.
2. Upgrade ERP and reporting systems
Pillar Two requires deeper, cleaner data than traditional compliance.
3. Review Transfer Pricing policies
Ensure TP reflects substance and is defensible under BEPS.
4. Develop governance and documentation processes
Prepare audit-ready files and consistent global documentation.
5. Model financial impact
Understand how:
Reallocated profits (Pillar One)
Top-up taxes (Pillar Two)
… impact cash tax and financial statements.
Conclusion
Pillar One and Pillar Two represent the most significant overhaul of international taxation in decades.
Although complex, their goals are clear:
fair taxation, transparency, and alignment between profits and economic substance.
Multinationals that invest now in systems, governance, and TP alignment will be best positioned to navigate the new global tax landscape.
