OECD Pillar Two and Transfer Pricing: What Global Companies Must Prepare For

OECD Pillar Two is part of a global tax reform initiative under the OECD/G20 Inclusive Framework on BEPS. Its primary goal is to ensure that large multinational enterprise (MNE) groups are subject to a minimum effective tax rate (ETR) of 15%, regardless of where they operate. This framework aims to reduce profit shifting to low-tax jurisdictions and create a more balanced international tax environment.

At the core of Pillar Two are the Global Anti-Base Erosion (GloBE) rules, which assess whether a multinational group meets the 15% minimum tax threshold in each jurisdiction. These rules include:

• Income Inclusion Rule (IIR): Allows a parent company to impose a top-up tax if a subsidiary is taxed below the minimum rate
• Undertaxed Payments Rule (UTPR): Acts as a secondary mechanism when the IIR is not applied
• Qualified Domestic Minimum Top-Up Tax (QDMTT): Enables countries to apply a domestic top-up tax before foreign jurisdictions intervene
• Expanded reporting requirements, including country-by-country calculations of income and taxes

These rules generally apply to multinational groups with annual consolidated revenues exceeding EUR 750 million.

Brazil has already implemented a domestic version of this framework through Law No. 15,079/2024, introducing a Qualified Domestic Minimum Top-Up Tax linked to CSLL to align with GloBE standards.

A New Global Framework for Transfer Pricing

The introduction of Pillar Two is significantly reshaping international taxation. Its impact extends beyond tax calculations, influencing transfer pricing strategies, corporate structures, and compliance frameworks.

Key implications include:

• Profit allocation across jurisdictions now directly impacts the effective tax rate
• Entities in low-tax jurisdictions may trigger additional tax liabilities
• Local tax incentives may lose effectiveness under the new system
• Economic substance and operational presence carry greater weight

Transfer pricing policies, which traditionally focused on pricing methods and margins, must now adapt to this broader regulatory structure.

Main Impacts on Transfer Pricing

1. Reassessment of margins and pricing methods
Low-margin structures in low-tax jurisdictions may result in:

• Effective tax rates below 15%
• Exposure to top-up taxes
• Greater audit scrutiny

Companies should reevaluate:

• Transfer pricing methods (CUP, Cost Plus, TNMM)
• Internal cost allocation
• Profit distribution across jurisdictions

2. Greater transparency and documentation requirements
Pillar Two increases the need for consistent and standardized reporting, including:

• Country-by-Country Reporting (CbCR)
• Financial adjustments aligned with GloBE income
• Reconciliation between accounting and tax data

Inconsistencies across reports can lead to penalties and compliance risks.

3. Review of tax incentives and special regimes
Tax benefits such as credits or special economic regimes may:

• Lower the effective tax rate
• Trigger top-up taxes
• Reduce the intended advantage of such incentives

Companies must assess whether these benefits remain viable under the new rules.

4. Changes to global structures and operations
Organizations may need to:

• Reallocate decision-making and risk functions
• Update intercompany agreements
• Reconsider intellectual property ownership structures
• Adjust operational models to align with substance requirements

What Global Companies Should Do Now

To prepare effectively, companies should:

• Assess global effective tax rates (ETR): Identify jurisdictions at risk of top-up tax
• Review transfer pricing strategies: Ensure margins and documentation are defensible
• Align tax and accounting functions: Maintain consistency across financial data
• Strengthen governance: Improve internal controls, compliance tracking, and monitoring
• Plan strategically: Reevaluate corporate structures and long-term tax positioning

Why This Matters

OECD Pillar Two represents a major shift in international taxation. Companies that delay adaptation risk:

• Increased tax liabilities
• Higher audit exposure
• Inefficient global structures
• Loss of strategic tax advantages

Those that act early will be better positioned to operate efficiently and compliantly in the evolving global tax environment.

Need support navigating OECD Pillar Two and transfer pricing changes?
Work with Zecca Ross Law to ensure your global tax strategy is compliant, aligned, and built for long-term success.

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