Pillar 2 and implications for Dutch business


On 20 December 2021, the OECD published its ‘Model Rules’, which countries (members of the OECD’s Inclusive Framework - IF) could use to implement Pillar 2 in their domestic laws. Subsequently, on 22 December 2021, the European Commission proposed the Pillar 2 Directive which is broadly based on the model rules.

Pillar 2 seeks to mitigate (remaining) tax avoidance (through base erosion and profit shifting) and tax competition between countries. The ambition for Pillar 2 is to enter into force on 1 January 2023 next to the already existing and complex (inter)national (corporate) tax systems. Given the complexity and potential impact of Pillar 2, it is highly recommended for companies to start with a Pillar 2 impact assessment. All in all, there is no doubt that Pillar 2 will drastically change the national and international tax landscape and will also create new, complex legislation and regulations that will be accompanied by additional compliance obligations for multinational companies.

What does Pillar 2 mean for international and Dutch companies?

It is clear that Pillar 2 will drastically change the international tax landscape. Whether it will also lead to a fairer distribution and a higher corporate tax burden remains to be seen. Pillar 2 will enter into force alongside the already existing and very complex (inter)national (corporate) tax systems, double tax treaties, various (European) Directives and decrees.
By the introduction of Pillar 2 rules, the (inter)national tax landscape will become even more complex. Although not explicitly mentioned as such by the OECD, Pillar 2 de facto forms an entirely new corporate tax system next to the tax systems of each member of the IF. In addition, countries will have to implement the top-up taxation mechanisms in their legislation. Depending on the position of an entity in the group structure (i.e. ultimate parent, intermediate parent or subsidiary), an entity may face a top-up tax under the Income Inclusion Rule (IIR) or Undertaxed Payments Rule (UTPR). The interaction between Pillar 2 and national corporate tax systems, as well as the interaction between the different measures, makes the situation extremely complex.

At the same time, the administrative burden for multinational companies is expected to increase. On the one hand, they may have to deal with top-up taxation. On the other hand, their compliance and reporting obligations within the various jurisdictions they operate will (highly) increase. In principle, the effective tax rate in each jurisdiction where the multinational is active will have to be determined to decide whether the minimum effective tax rate is met. A lot is still unclear and will have to be further crystallized. Based on the Model Rules, a standardised 'GloBE International Return' is introduced which rather looks like an additional separate tax return. A group entity has 15 months (18 months in the first year in which the rules enter into force) to complete and file the GloBE International Return to the (national) tax authorities, unless an exception applies for certain specific cases regarding the completion and filing of this return.

The (current) ambitious timeline of the OECD is to have Pillar 2, in principle, enter into force as of 1 January 2023. The UTPR will follow one year later, on 1 January 2024.


The current international tax system was designed at the beginning of the 20th century. However, as a result of the strong digitalisation and globalisation of the economy, the current tax system needs to be revised. In recent decades, and especially after the financial crisis of 2008, there is an increasing focus on the taxation of multinational companies which is a regular subject of both social and political debates. Partially in connection with the latter point, in 2015, the OECD formulated 15 Action Points to combat tax avoidance, tax base erosion and profit shifting by multinational companies (the so- called “BEPS 1.0”). At that time, no (concrete) consensus was reached to address the (remaining) challenges in relation to taxation of the digitalising and globalising economy.

In the course of 2019, the OECD (via the IF) introduced two Pillars to address the (remaining) challenges in the digitalising world (the so-called “BEPS 2.0”). These Pillars aim to reallocate (new) taxing rights to market jurisdictions (Pillar 1) (which concerns the 100 largest companies) and a global minimum tax rate of 15% (Pillar 2) with an annual turnover of, in principle, at least € 750 million. For the turnover threshold, the annual turnover of the last four years preceding the year to be assessed should be considered. If in (at least) two of these years the annual turnover is at least €750 million, Pillar 2 will apply.

Following the political agreement within the Inclusive Framework on 8 October 2021, the OECD published on 20 December 2021, their (long-awaited) 'model rules', which countries (members of the IF) could use to implement Pillar 2 in their domestic laws. Two days later, on 22 December 2021, the European Commission also published the proposed Pillar 2 Directive which is broadly based on the OECD’s model rules. At the beginning of 2022, an Explanatory Commentary to the model rules is expected, and later in 2022 a detailed Implementation Framework for these model rules will follow. As said, the ambition is, in principle, for Pillar 2 to enter into force on 1 January 2023.

Pillar 2 based on recent OECD Model Rules and EU Directive Proposal

Pillar 2 seeks to ensure that multinational companies always pay a minimum level of corporate tax. In their statement in June 2021, IF members reached an agreement that the minimum rate will be 15%. In order to achieve this minimum level, the OECD has proposed a couple of measures. For the application of Pillar 2, the definitions which already apply to Country-by-Country Reporting (CbCR) are followed as much as possible.

The Income Inclusion Rule (IIR), the primary rule of Pillar 2, entails a top-up taxation at the level of the (ultimate) parent company if and to the extent that the effective tax rate of the subsidiary (or the permanent establishment) is below the minimum rate of 15%. This effective minimum tax rate implies that, in addition to the minimum rate, a (somewhat) common tax base should be determined: the so-called GloBE tax base. The commercial profit determination based on financial reporting (such as IFRS, US GAAP or Dutch GAAP) serves as a starting point. Some adjustments are then made to arrive at the GloBE tax base. In case of temporary differences (between the commercial and tax-based determination of profit), a kind of deferred tax accounting system is provided. The GloBE tax base forms the denominator of the fraction, where the numerator is formed by the covered taxes (in short, the corporate tax due).

To calculate the effective tax rate, the same approach is taken as for the calculation of the GloBE tax base as well as the covered taxes on a jurisdictional basis (the so-called “jurisdictional approach”). In other words, this means that both covered taxes and GloBE tax base will be determined per jurisdiction. It is worth mentioning that an arm's length principle applies to cross-border intra-group transactions for Pillar 2 purposes. In addition, in the model rules, a specific anti-mismatch measure is introduced, which restricts deductions in case of intra-group financing constructions, if there is no 'commensurate increase in the taxable income'. Finally, a (kind-of) participation exemption regime is introduced for distributed dividends.

Besides the IIR, additional measures have been introduced as ‘backstop’ provisions including a deduction limitation for certain (base eroding) intra-group payments (such as interest and royalties) that are not subject to the effective minimum tax rate (Undertaxed Payments Rule (UTPR)). It is important to note that the application of the UTPR does not only apply to group entities that have made intra-group payments to low tax foreign group entities. The model rules introduce an allocation rule, based on the number of employees and the total value of tangible assets, to calculate (and distribute) the UTPR top-up tax rate.

It is unclear how the different (implemented) measures will exactly interact (within different jurisdictions). Preventing double taxation has not yet been settled. The same is true regarding the coexistence between Pillar 2 and the GILTI regime in the United States.


Certain sectors, such as investment and pension funds, have been excluded from the scope of Pillar 2. Additionally, a formulaic substance-based carve-out has been introduced, which will exclude a certain percentage of wage costs and tangible assets from the scope of Pillar 2. In principle, this carve-out will consist of 5% of the tangible assets as well as 5% of the wage costs within a certain jurisdiction. However, a higher percentage of 10% for the wage costs and 8% of the value of the tangible assets will apply for the first 10 years (these percentages will annually (gradually) decrease to 5%).

Furthermore, the OECD introduces in the model rules an exclusion for companies that are ‘in the initial phase of their international activity’. A temporary exclusion from the UTPR up to five years will apply to companies that (i) are active in no more than six jurisdictions and (ii) whose net book value of tangible assets does not exceed EUR 50 million. Moreover, if a company has an average revenue of no more than EUR 10 million and a profit of no more than EUR 1 million within a jurisdiction, the company enjoys a ‘de minimis exclusion’ in that jurisdiction.

It is relevant to note that during the (IF) negotiations, the Netherlands has constantly committed for Pillar 2 to be implemented as robustly as possible (with as few exclusions if needed). The above-mentioned exclusions show the outcome of mutual consultation and the (political) compromises among IF Members to reach an agreement.

Time for a first impact assessment

Following the tight schedule and the ambition to implement Pillar 2 (through an EU Directive and the ensuing national legislation, in the EU) by 1 January 2023, it is important for you to stay on top of any developments. Hopefully, the anticipated Explanatory Commentary and the Implementation Framework to implement Pillar 2 will provide some more clarity.

Multinational companies should not wait for the (final) national legislation before starting the execution of an impact assessment for Pillar 2 purposes. Questions such as ‘what does Pillar 2 entail for my organisation in terms of financial impact, required means, data availability and readiness of (IT) systems within my company?’ and ‘which stakeholders within and outside of my organisation should I consult regarding the potential impact of Pillar 2 on my organisation?’ are crucial in this assessment.

A next step could be to integrate compliance and reporting requirements for Pillar 2 within the current compliance and reporting processes in your organisation. This requires resources from various positions within the organisation – not just tax related.

This is probably easier said than done. That is why we are of the view that it is essential to not wait (too) long before executing a (first) impact assessment. Pillar 2 will not only result in (possible) financial impact, but it will also result in additional requirements regarding compliance and reporting. Our recommendation is, therefore, planning is key.

Contact us

Maarten de Wilde

Maarten de Wilde

Director, PwC Netherlands

Tel: +31 (0)63 419 67 89

Vassilis Dafnomilis

Vassilis Dafnomilis

Senior Manager Tax, PwC Netherlands

Tel: +31 (0)61 399 87 29

Laura den Ridder

Laura den Ridder

Associate, PwC Netherlands

Tel: +31 (0)63 419 67 69

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