The OECD’s BEPS project targets base erosion and profit shifting, where a group books profit far from its staff and customers. If your large group has a US parent, you still file BEPS country-by-country reports. Washington endorsed the 15% global minimum tax in 2021 and renounced it in January 2025.
What the 2015 BEPS package asked of countries
The OECD and the G20 published 15 actions against profit shifting in October 2015. Four of them became minimum standards that every participating country must apply. Your group’s country-by-country report comes from one of them, Action 13.
| BEPS minimum standard | What every participating country applies |
| Action 5, harmful tax practices | A review of preferential tax regimes and the spontaneous exchange of tax rulings |
| Action 6, treaty abuse | Anti-abuse clauses in its tax treaties |
| Action 13, country-by-country reporting | A yearly report of each large group’s profit and tax in every country |
| Action 14, dispute resolution | A mutual agreement procedure that settles treaty disputes in good faith |
Since June 2016, countries outside the OECD can sign up to these standards through the Inclusive Framework. They also accept peer review of how they apply them. Guatemala’s entry in January 2026 took membership to 148.
Action 4 was only a recommendation. It tied a cap on net interest deductions to EBITDA (profit before interest, tax, depreciation and amortization) and left the ratio to each country. If your parent lends to subsidiaries abroad, each borrower faces the interest cap of its own country.
How Pillar Two collects the 15% minimum tax
If your group’s revenue is €750 million or more, Pillar Two, the minimum tax half of the OECD’s two-pillar plan, applies to it. You owe a top-up tax in any country where your effective rate is below 15%. The OECD’s model rules decide which government collects it first.
| Pillar Two rule | Government that collects the top-up tax | Place in the order |
| Qualified domestic minimum top-up tax | The country where the low-taxed profit arises | First, ahead of every other country |
| Income inclusion rule | The country of the group’s ultimate parent | Second, on any amount the local tax leaves unpaid |
| Undertaxed profits rule | Other countries where the group operates | Last, as a backstop for any remaining amount |
In the UK, the domestic top-up tax and the income inclusion rule apply to accounting periods that begin on or after December 31, 2023. A year later, the undertaxed profits rule followed. The EU’s minimum tax directive required member states to apply the income inclusion rule from the same date.
The US break with Pillar Two
When 136 countries backed the two-pillar plan in October 2021, Washington was one of them. Congress never enacted the Pillar Two rules. President Trump rejected it on January 20, 2025. It was his first day in office. His memorandum says the deal has “no force or effect” in the US.
He also asked for options for protective measures within 60 days. In May 2025, the House version of the reconciliation act added a retaliatory section 899. It would have raised US tax for residents of countries with an undertaxed profits rule or a levy on digital services revenue.
Congress’s tax-writing chairmen removed the section on June 26, 2025. Treasury Secretary Bessent had asked them to. The G7 had agreed to let US tax law coexist with Pillar Two. On June 28, the G7 set out a side-by-side system for US-parented groups in a statement.
What the side-by-side package changed
In December 2025, the Inclusive Framework approved the Side-by-Side Package. If your group qualifies, you can elect a deemed top-up tax of zero under the income inclusion and undertaxed profits rules, Mayer Brown explains. Local minimum top-up taxes still apply to your foreign subsidiaries.
You gain the most from the election where a subsidiary’s country has no domestic top-up tax. If you don’t elect, an income inclusion rule or an undertaxed profits rule elsewhere could collect the missing tax.
How the UK is enacting the safe harbor
Each government must still write the safe harbor into its own law, Treasury noted in September 2026. The UK’s draft legislation of July 13, 2026, adds it next to other new and extended safe harbors.
| Safe harbor in the UK draft | What it changes | Periods it applies to |
| Side-by-side safe harbor | No multinational top-up tax for a group whose ultimate parent is in a qualified side-by-side territory. The draft names the United States as one | Accounting periods that begin on or after January 1, 2026 |
| Simplified effective tax rate safe harbor | Top-up amounts set at nil where a territory’s simplified rate reaches the minimum and other conditions are met | Periods that begin on or after December 31, 2026. Some earlier periods qualify under a transitional rule |
| Transitional safe harbor based on country-by-country reports | One more year of relief | Periods that begin up to December 31, 2027, if they end by June 30, 2029 |
HMRC estimates that the package will cost the UK £590 million in 2026-27 and £740 million by 2030-31. It expects about 4,250 businesses to see only a negligible change in their paperwork.
Filing rules that still apply to US groups
If your US parent’s revenue last year was $850 million or more, you’ll attach Form 8975, the US country-by-country report, to the parent’s tax return. Treasury fixed that threshold in dollars in 2016. It equaled €750 million on January 1, 2015.
Treasury said in its 2016 regulations that a local filing demand on a smaller US group would be inconsistent with the BEPS report. The IRS expects about 2,045 groups to file Form 8975.
You’ll make the side-by-side election on the revised GloBE (Global Anti-Base Erosion) Information Return, the standard Pillar Two filing. Treasury welcomed it on September 11, 2026. Your election also exempts the group from parts of the return. Data filed for one country’s local minimum tax reaches only that country.
US treaties and the US minimum tax
The United States never signed the multilateral instrument, the BEPS convention that amended other countries’ tax treaties. US treaties use their own limitation-on-benefits articles to stop treaty shopping by companies set up only to claim treaty benefits. The instrument’s tie-breaker for dual-resident companies has no effect on them.
The G7 accepted the side-by-side system because US groups pay a US minimum tax on foreign profits. Its first version, GILTI (global intangible low-taxed income), came with the 2017 Tax Cuts and Jobs Act. The 2025 reconciliation act renamed it net CFC (controlled foreign corporation) tested income from 2026.
In the same act, Congress repealed the tax-free return on foreign tangible assets. Senate Finance Committee staff put the new effective rate at 14%. Washington has debated such a tax since at least 2015, when the Obama administration proposed a 19% rate.
What happened to Pillar One
Under Amount A, the core of Pillar One, countries where the largest groups sell would have taxed a share of their profits. Its legal text, a multilateral convention, came out in October 2023. EY reported in January 2025 that the convention still hadn’t opened for signature.
In March 2026, Treasury’s deputy assistant secretary for international tax affairs, Rebecca Burch, addressed a European audience. She said Pillar One isn’t the framework for resuming talks on the digital economy, EY reported. She also said the United States is willing to act against countries with unilateral digital services taxes.
Under Amount B, set out in the February 2024 report, subsidiaries in baseline marketing and distribution can price intra-group sales with a simpler method. Each country decides if it will apply the method. The IRS has opened it to US taxpayers for tax years from 2025.
FAQ
Which Pillar Two rule have the most countries adopted?
The domestic minimum top-up tax is the most common. EY’s February 2026 survey counted 55 jurisdictions with one for fiscal year 2026. It found 46 with an income inclusion rule and 32 with an undertaxed profits rule.
Has the EU adopted the side-by-side safe harbor?
Not across the whole EU yet. The authors of a manual for the European Commission reviewed 14 member states in May 2026. Only Finland and Slovenia applied the safe harbor from 2026. Twelve others hadn’t yet written it into national law.
Is the US research credit protected from Pillar Two?
Yes, for foreign-headquartered groups with US operations. Treasury said in its September 2026 statement that these groups can apply new rules under the revised GloBE return that protect substance-based tax incentives. The US research credit is one of those incentives.