What is Pillar Two?

How it works

It applies to MNE groups with consolidated revenue of EUR 750 million or more; where profits in a jurisdiction are taxed below 15%, a top-up tax is collected via the IIR, UTPR or a domestic minimum top-up tax.

How the top-up is actually computed

Pillar Two works jurisdiction by jurisdiction, not entity by entity. For each jurisdiction the group computes GloBE income and adjusted covered taxes, divides one by the other to arrive at an effective tax rate, and where that rate falls below 15% applies a top-up on the excess profit. Excess profit is GloBE income less the substance-based income exclusion — a carve-out calculated on eligible payroll and the carrying value of tangible assets, which deliberately protects real operations while catching profit parked against little substance.

The charging order, and why it matters to India

Three mechanisms can collect the same top-up, so the order decides which treasury receives it. A qualified domestic minimum top-up tax charges it in the low-taxed jurisdiction itself; failing that, the income inclusion rule charges it at the ultimate parent; failing both, the undertaxed profits rule allocates it among other jurisdictions. India has not legislated the GloBE rules, but Indian operations are already exposed through foreign parents' income inclusion rules — which is precisely why a domestic minimum top-up tax is the defensive option under discussion.

Where Indian incentives collide with the floor

The uncomfortable arithmetic is that India's own concessions can create the shortfall. A company taxed under Section 115BAB sits near a 17.16% effective rate once surcharge and cess are counted — close to the floor, and below it if the deduction under Section 10AA or the patent-box rate under Section 115BBF applies to a material share of profits. Where that happens the incentive is not enjoyed by the group at all; it is collected as top-up tax by another jurisdiction. For in-scope groups the transitional CbCR safe harbours buy time rather than immunity, and the modelling should run on actual jurisdictional data rather than assumed headline rates.

This content is for general guidance only and does not constitute professional advice. Tax law changes frequently — verify the current position and consult a qualified Chartered Accountant before acting. Last reviewed: June 2026.