Transfer Pricing Under BEPS 2.0: Practical Implications

The OECD's Pillar Two rules, now being enacted into domestic law across G20 jurisdictions, impose a global minimum tax of 15% on the profits of large multinational groups. For groups with effective tax rates below this threshold in any jurisdiction, the rules create a top-up tax obligation that must be computed, reported, and paid — often in a jurisdiction different from where the underlying profit arises.

For groups with operations in India, Canada, and the United States, the interaction of Pillar Two with existing bilateral tax treaties, domestic anti-avoidance rules, and transfer pricing frameworks creates a compliance burden that is qualitatively different from prior international tax compliance. The computation of the Pillar Two top-up tax requires a consolidated view of the group's financial results at the jurisdictional level — a calculation that most finance teams are not currently equipped to perform.

The practical implication is that groups crossing the €750M revenue threshold — or anticipating crossing it — need to begin Pillar Two impact assessments now. The assessment should cover: jurisdictional effective tax rate analysis, identification of low-taxed constituent entities, evaluation of the Substance Based Income Exclusion (SBIE) eligibility, and modelling of top-up tax liability under the Income Inclusion Rule (IIR) and Undertaxed Profits Rule (UTPR).