OECD Global Minimum Tax (Pillar Two) in India: 2025 Guide

The OECD's Pillar One and Pillar Two By Nagavarapu Bhavya Akshaya A Basic Overview An international tax reform initiative that aims to address the challenges of the digital economy and curb multinational corporations from shifting profits to low-tax jurisdictions. A large majority of countries in the OECD/G20 Inclusive Framework have committed to the two-pillar solution.      Pillar One: Reallocating taxing rights   Pillar One aims to reallocate a portion of the profits of the largest and most profitable multinational enterprises (MNEs) to the countries where their products or services are sold and consumed.Targeted companies include MNEs with global revenues exceeding €20 billion and a profitability margin of more than 10%.

Hence, with the implementation of this reform, 25% of a company's "residual profit"—profit above the 10% margin—is reallocated to market jurisdictions. The goal of this reform is to ensure that the largest corporations pay a fairer share of taxes in the countries where they derive their revenues, even without a traditional physical presence. 

Pillar Two: Global minimum tax   Pillar Two establishes a global minimum effective corporate tax rate of 15% for large multinational groups. This discourages profit shifting to low-tax jurisdictions by ensuring that MNEs pay a minimum level of tax regardless of where they operate.Targeted companies include  MNEs with consolidated group revenues of at least €750 million.If an MNE's effective tax rate in a given jurisdiction falls below the 15% minimum, a "top-up" tax is applied.

•  The two primary enforcement rules are:
  • Income Inclusion Rule (IIR): The parent company is required to pay a top-up tax on the low-taxed income of its foreign subsidiaries.
  • Under-Taxed Profits Rule (UTPR): It can increase taxes in other jurisdictions if the parent company's country does not apply the IIR.
• Domestic minimum tax: Countries can also introduce a Qualified Domestic Minimum Top-up Tax (QDMTT) to collect the top-up tax revenue directly.

 

India's Angle over the OECD Reforms

Pillar One - India has an Equalisation Levy (Google Tax) and significant digital user base.Once Pillar One is implemented, India may have to withdraw unilateral digital tax measures, but will gain rights to tax profits of global tech giants like Google, Amazon, Meta.

Pillar Two - India’s domestic corporate tax rate (22% for most companies, 15% for new manufacturing) is above 15%, so India won’t lose out.But Indian MNEs with subsidiaries in low-tax jurisdictions (like Mauritius, Singapore, UAE, Cayman) will be impacted.

Countries with Major Impact 

• Countries like  Cayman Islands, Bermuda, British Virgin Islands, Mauritius, Jersey, Guernsey, Bahamas are worst hit.Their zero/ultra-low corporate tax models collapse because MNEs will face top-up taxes in parent jurisdictions.Loss of attractiveness as holding or profit-shifting hubs
• A few other impacted countries include Singapore, Switzerland, United States, Ireland and United Arab Emirates (UAE) as their effective tax rate falls below the minimum tax rate of 15%
• United States has a  Loss of taxing rights as profits shift out of the US to consumer markets (India, EU, emerging economies).
• European Union gains taxing rights on global MNEs selling into EU markets.

 

Consult with A2consultants to explore our indepth knowledge and insight on OECD Pillar One and Pillar Two

For detailed insights and practical guidance, visit our Knowledge Center and access our curated guides on India market entry:  https://www.a2consultants.in/guides/international-taxation-in-india-for-foreign-companies

About the Author – Nagavarapu Bhavya Akshaya

Nagavarapu Bhavya Akshaya is a CA Final and CMA Final student and an All India Rank holder (AIR 31). With a strong academic foundation in accounting, taxation, and corporate laws, she brings a structured and analytical perspective to complex financial and regulatory topics. Her work focuses on simplifying technical subjects for professionals and businesses, with a special interest in international taxation, corporate structuring, and compliance advisory.

 

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