Pillar One & Pillar Two — Strengthening the Foundation

The OECD/G20 BEPS 2.0 two-pillar solution reforms where and how much multinational enterprises pay tax globally — through Pillar One profit reallocation (Amount A and Amount B) and Pillar Two’s 15% global minimum tax via GloBE rules and the Subject to Tax Rule[1]. The UAE has implemented a Domestic Minimum Top-up Tax aligned with OECD GloBE Model Rules, effective for financial years starting on or after 1 January 2025[2].

What is BEPS 2.0?

Base Erosion and Profit Shifting (BEPS) relates to avoidance of tax by multinational enterprises through use of harmful tax strategies or exploitation of loopholes to artificially shift profits to low or no-tax jurisdictions[1]. KCM’s published guide states that over 135 Inclusive Framework members, representing more than 95% of global GDP, agreed on a two-pillar solution to reform international taxation rules (KCM secondary; OECD primary membership count not available in this research pack)[1].

Pillar One — Where Companies Pay Tax

Amount A

Amount A applies to MNEs with global revenue over EUR 20 billion and total profits greater than 10% of global revenue[1]. It seeks to reallocate taxing rights over a portion of excess profit from residence countries to market jurisdictions, even without physical presence[1].

Amount B

Amount B simplifies existing transfer pricing rules for baseline marketing and distribution activities, applying to qualifying wholesale distributors of tangible goods[1]. The arm’s length margin range (1.5%–5%) depends on industry grouping, operating asset intensity, and operating expense intensity[1]. India has flagged multiple reservations on the computation mechanisms[1].

Pillar Two — Global Minimum Tax of 15%

GloBE Rules

Global Anti-Base Erosion rules seek to impose a minimum 15% effective tax rate on a jurisdictional basis[1]. They apply to MNE groups with consolidated revenue of EUR 750 million or more[1]. Where ETR in a jurisdiction falls below 15%, a Top-up Tax is levied to bring total tax up to the minimum rate[1]. A Substance-Based Income Exclusion (SBIE) provides relief for entities with genuine economic activities, based on tangible assets and employee costs[1].

Subject to Tax Rule (STTR)

STTR is a treaty-based rule allowing countries to retain taxing rights on certain intra-group payments (interest, royalties, service fees) that are subject to nominal rates below 9% in the recipient’s jurisdiction[1]. It may apply even where MNEs are not subject to GloBE rules[1].

India’s Position

India has flagged reservations on Amount B computation mechanisms[1]. KCM’s published guide states that for Pillar Two, India’s approach to QDMTT (Qualified Domestic Minimum Top-up Tax) and SBIE carve-outs will significantly affect how Indian operations of multinationals are impacted (KCM secondary; India competent-authority position not available in this research pack)[1].

UAE Domestic Minimum Top-up Tax

Domestic Minimum Top-up Tax in the UAE (UAE DMTT) applies to Constituent Entities of MNEs operating in the UAE with annual global revenues of €750 million or more in the Consolidated Financial Statements of the Ultimate Parent Entity in at least two out of the four financial years immediately preceding the financial year in which the UAE DMTT applies[2]. The Domestic Top-up Tax was effective across the UAE for financial years starting on or after 1 January 2025[2].

The UAE DMTT is closely aligned with the GloBE Model Rules, Administrative Guidance and Commentary issued by the OECD, reflecting the UAE’s commitment to implementing the OECD Two-Pillar Solution[2]. As the UAE corporate tax regime does not include a controlled foreign company regime, at this stage the decision has been made not to implement the Income Inclusion Rule (IIR)[2]. The UAE DMTT rules ensure that the UAE’s domestic tax base is protected by preventing foreign jurisdictions from collecting top-up tax on UAE profits of UAE Constituent Entities that are in scope of the Pillar Two rules[2].

References

1. KCM Consultants, Pillar One & Pillar Two — Strengthening the Foundation (Knowledge Hub, 20 June 2026).
2. UAE Ministry of Finance, Top-up Tax (16 September 2025).