Global Tax Shift: How Firms Adapt to 15% Minimum

A new floor under corporate tax

Large companies are moving quickly to adjust to a new global tax order. Dozens of economies have begun enforcing a 15% minimum effective corporate tax for big multinational groups. The measure, known as Pillar Two of the OECD/G20 project, aims to set a floor under tax competition and curb profit shifting. It applies to groups with annual revenue of at least 750 million euros.

The European Union, the United Kingdom, Japan, South Korea, Canada, and several other jurisdictions have enacted rules starting in 2024 or 2025. Some are phasing in pieces of the regime. Others have added domestic top-up taxes so any extra tax is collected locally rather than abroad. The United States has not adopted Pillar Two as enacted elsewhere, but it already has a minimum tax on foreign income known as GILTI.

The reform follows a 2021 agreement by more than 130 jurisdictions in the OECD/G20 Inclusive Framework. At the time, officials called it a “historic” step. The EU Council described its implementation as “ensuring a minimum effective corporate tax rate of 15% for large corporate groups” in its December 2022 directive. U.S. Treasury Secretary Janet Yellen said in 2021 the goal was to “end the race to the bottom on corporate taxation.”

How the rules work

Pillar Two is technical and data heavy. It calculates an effective tax rate (ETR) for each jurisdiction where a group operates. If the ETR is below 15%, a top-up tax fills the gap. The framework uses a set of ordering rules to determine who collects that top-up.

• Qualified Domestic Minimum Top-up Tax (QDMTT): Allows a country to collect the top-up on entities in its own borders.
• Income Inclusion Rule (IIR): Imposes top-up tax at the parent level on low-taxed subsidiaries.
• Undertaxed Profits Rule (UTPR): A backstop that allocates residual top-up tax among countries where the group operates if low-tax income is not otherwise taxed.

Early guidance provides transitional safe harbors that rely on country-by-country reports and other simplified tests for the first years. These lighten compliance where a group clearly exceeds the 15% threshold or has limited activity.

Why this matters for business

The financial stakes are material. The OECD has long estimated that profit shifting erodes corporate tax bases by tens of billions of dollars each year. Minimum taxes are meant to stabilize revenue and deter the use of low-tax jurisdictions for booking profits. For companies, the changes can affect where they invest, how they structure entities, and how they report results.

Analysts say the reform narrows gaps between headline rates and effective rates. That may reduce the benefit of certain tax incentives. It can also favor jurisdictions that convert credits into refundable or cash equivalent incentives that still count as taxed under the new rules.

What companies are doing now

• Upgrading systems: Finance teams are mapping data from ERP, HR, and statutory ledgers to new Pillar Two calculations. Many are building dashboards for entity-level ETR, covered taxes, and substance carve-outs.
• Revisiting incentives: Groups are reviewing R&D credits, patent boxes, and special economic zone benefits to see how they are treated under the rules. Some are negotiating to convert nonrefundable credits into refundable ones.
• Entity simplification: Complex structures built around tax motives are under review. Consolidating entities can simplify compliance and reduce exposure to the undertaxed profits rule.
• Cash planning: Treasury teams are modeling potential top-up payments, especially where QDMTTs start first. That helps avoid surprises at quarter-end.
• Disclosure: Public companies are updating risk factors and tax notes. Accounting standards (such as IAS 12 and ASC 740) guide how and when to recognize impacts and provide qualitative disclosures while rules are still being implemented.

The compliance burden

Tax departments describe a steep learning curve. The rules rely on financial accounting concepts but include many adjustments. Differences in local implementation add complexity. For example, some countries start with QDMTT, others with IIR, and the timing of UTPR varies. That creates a patchwork for global groups.

Technology vendors and advisers have rolled out software to automate calculations. Still, companies report that data gathering is the hard part. Many entities in emerging markets keep records that are not easily mapped to group standards. Internal controls must be updated to support audit trails and regulator reviews.

A balanced view: benefits and risks

Supporters argue the minimum tax creates a more level playing field. They say it reduces pressure on countries to compete solely through very low rates. It may also improve the predictability of tax outcomes across borders.

Critics focus on cost and uncertainty. Business groups warn that, in the short term, compliance can be expensive and time consuming. Some worry about double taxation if rules interact poorly, or if disputes take years to resolve. Concerns are sharper for groups operating in many developing countries that are still drafting legislation.

There is also the question of competitiveness. If big economies move first while others lag, companies could face asymmetric obligations. That might influence where capital flows, at least during the transition.

Investor and credit angles

Investors are watching two items: volatility in effective tax rates and cash tax outflows. A sudden jump in the ETR can hit earnings, even if the cash impact lags. Credit analysts will look at free cash flow and covenant headroom as top-up taxes begin to bite.

Companies with strong domestic footprints in higher-tax jurisdictions may see little change. Those with large shares of income in low-tax locations may face a step-up. Sector effects differ. Technology and pharmaceuticals, which often hold valuable intellectual property offshore, have been early adopters of planning responses. Industrials with global manufacturing networks are focused on how substance-based carve-outs for payroll and tangible assets reduce top-up exposure.

What to watch next

• First payments: The earliest top-up taxes are expected as 2024 and 2025 results are finalized. Cash impacts will become clearer over the next four to six quarters.
• Guidance updates: The OECD continues to publish administrative guidance and examples. Clarifications on credits, safe harbors, and the treatment of losses remain important.
• Litigation and disputes: Differences in how countries apply the rules may spur challenges. Advance pricing agreements and mutual agreement procedures could see heavier use.
• U.S. policy debate: Any move by the United States to align or adjust its minimum tax rules would have large spillovers for global groups.

Context and caveats

The new regime does not replace all other international tax rules. Transfer pricing, withholding taxes, and digital services measures still matter and can interact with Pillar Two in complex ways. Local incentives tied to jobs and assets remain relevant, especially where they increase the substance carve-out.

Central bankers have also warned that financing conditions matter for corporate planning. In 2022, Federal Reserve Chair Jerome Powell said the Fed would “keep at it until the job is done” to restore price stability, noting that a “restrictive policy stance” could persist. Higher borrowing costs make tax-driven cash timing even more important for CFOs.

Bottom line

The 15% minimum tax is reshaping corporate playbooks. The direction is clear even if the path is uneven. Companies that invest early in data, systems, and policy engagement are finding fewer surprises. For boards and investors, the message is simple: track exposures, control the inputs, and stay close to evolving guidance. The rules aim to bring stability and fairness to global taxation. The work of making them fit day-to-day business has only just begun.