Global minimum tax: pillarious but not funny

A report on a panel session from the IBA Annual Conference, held in Toronto on 3 November 2025

Session Co-Chairs

Devon Bodoh, Weil  Gothsal & Manges, Washington, DC and Miami

Margriet Lukkien  Loyens & Loeff, Amsterdam

Speakers

Ana Cláudia Akie Utumi  Utumi Advogados, São Paulo

Andrew Quinn  Maples Group, Dublin

Reto Heuberger  Homburger, Zürich

Sabrina Wong  KPMG Law, Toronto

Sandy Bhogal  Gibson Dunn, London

Reporter

Luis André Chilingano León  DLA Piper, Lima

Introduction

This report provides a comprehensive overview of discussions on recent developments in international corporate taxation, focusing on the implementation of the Organisation for Economic Cooperation and Development’s (OECD) Pillar Two rules, the emerging side-by-side system and related legal and transactional implications. It summarises the G7’s support for the use of a side-by-side approach, potentially exempting United States multinational enterprises (MNEs) from the Income Inclusion Rule (IIR) and the Undertaxed Payments Rule (UTPR), as well as providing updates on Pillar Two adoption and adjustments in Ireland, Canada, Switzerland, Latin America and the United Kingdom. This article also highlights practical considerations for cross-border transactions, securitisations and evolving tax insurance solutions.

Panel discussion

G7 statement

Sandy Bhogal pointed out that the G7 have issued a statement indicating that they have reached an agreement on the use of a side-by-side system, which would result in the effective exclusion of US MNEs from both the IIR and UTPR. The potential use of a side-by-side system implies that US companies are not going to face taxation under the IIR or the UTPR on profit that is earned in the US or abroad. Several design pathways have been evaluated, including recognising Global Intangible Low-Taxed Income (GILTI) as an IIR (which is now considered impracticable), amending the Global Anti-Base Erosion Model (GloBE) rules to expressly incorporate a side-by-side approach or establishing such a system through a safe harbour, which seems to be the most feasible option.

Andrew Quinn stated that during the process of incorporating a future side-by-side safe harbour into European Union law, the European Commission wants to avoid having to revise the EU Pillar Two Directive (Directive (EU) 2022/2523). Instead, the EU plans to rely on Article 32 of the Directive (originally conceived as a transitional tool), which contains a dynamic link to ‘qualifying international agreements’ on safe harbours. The Commission’s guidance states that the OECD’s administrative guidance in this regard qualifies.

Bhogal identified vulnerabilities to be aware of in the context of a side-by-side arrangement, such as fragmentation of the global minimum tax, fairness and interactions with tax treaties, implementation complexity, double taxation or double non-taxation, possible political backlash and compliance concerns, etc.

Margriet Lukkien addressed the possibility that the side-by-side system would not have retroactive effect. She also posed the question of whether such system would still be necessary considering that the UTPR safe harbour that is soon to expire may be extended until 2029 and that the US is pushing for tax credits to be earmarked as qualifying tax credits for Pillar Two purposes. This would relieve US profits from having to address the overall problem. Devon Bodoh referred to the fact that it’s still uncertain whether the US will prioritise the discussion internally, but considers that the current US administration is willing to use all of the available tools at its disposal to enforce a solution.

Pillar Two implementation

Quinn explained that Ireland’s corporate tax regime has evolved from targeted incentives introduced in the 1950s to the implementation of a unified 12.5 per cent tax rate. Due to the historical importance of such a rate, the move to a 15 per cent minimum tax rate under Pillar Two has been a major policy change. He also indicated that the anticipated use of a side-by-side agreement is expected to benefit Ireland materially by promoting the establishment of US companies in the country.

Ana Cláudia Akie Utumi explained that Latin America has shown limited movement on Pillar Two because most countries have relatively few large multinational groups and, therefore, there is little revenue incentive to adopt the IIR or UTPR. In Brazil, existing controlled foreign company (CFC) and CFC-type rules already tax foreign income at rates far above 15 per cent, meaning that the introduction of an IIR would not materially increase the revenue generated. Consequently, Brazil has implemented a qualified domestic minimum top-up tax (QDMTT) only, which the OECD has recognised as qualifying for the QDMTT safe harbour. However, Brazil has not adopted the IIR or UTPR. This has raised concerns for Brazil in regard to its position as a major recipient of foreign investment, because many domestic tax incentives do not generate qualified credits and, therefore, they do not provide relief from the QDMTT. It is considered unlikely that many Latin American jurisdictions will implement the IIR or UTPR, with the QDMTT expected to remain the primary defensive measure in use.

Sabrina Wong explained that Canada has enacted Pillar Two legislation, implementing the IIR and QDMTT pursuant to the Global Minimum Tax Act (GMTA). The GMTA includes an ambulatory interpretive rule requiring consistency with OECD materials ‘as amended from time to time’. Because certain OECD administrative guidance introduces rules not contained in the GMTA, statutory amendments are sometimes required, and Canada has already released proposed amendments to update the GMTA in line with certain post-2024 guidance.

Wong also contemplated that the potential side-by-side system could influence the future competitiveness and headquartering decisions of Canadian multinational groups, particularly those with substantial foreign operations. Amendments to the GMTA will continue to be required as the OECD issues new guidance and as the Inclusive Framework is updated to finalise its position related to the side-by-side approach. In parallel, Canada rescinded its digital services tax in June 2024 as part of efforts to support broader trade negotiations with the US. However, certain retaliatory tariffs remain in place.

Reto Heuberger pointed out that Switzerland entered the Pillar Two process after pressure from the OECD. The country has abolished its preferential mixed-company regimes, but has also introduced other tax incentives. The country adopted an IIR in 2025 to maintain its qualifying status and to make sure that foreign jurisdictions cannot impose top-up tax on Swiss profits. However, a practical issue arises in the sense that Swiss multinationals must now levy a QDMTT and IIR on profits in low-tax jurisdictions, even when those profits would not otherwise be taxed under Swiss domestic rules.

Bodoh commented that there is a growing trend involving the use of ‘reversions’, whereby foreign companies that previously relocated outside of the US are now considering returning to the country. This shift is driven by factors such as more favourable access to US capital markets, the avoidance of complex foreign reporting requirements and potential benefits related to the use of the side-by-side system, alongside anticipated supportive tax and tariff policies for US multinationals that are expected over the next few years. Overall, the combination of strategic financial incentives, regulatory considerations and index inclusion rules is prompting increased discussion among large multinational companies about the benefits of relocating company headquarters or operations back to the US.

Bhogal explained that while the UK is publicly supportive of the situation as a G7 member and co-chair of the OECD Inclusive Framework, it has been cautious in terms of its commentary. Legislative amendments related to Pillar Two are still pending, while the country’s digital services tax remains but generates relatively modest revenue, meaning it could be adjusted if needed for diplomatic or policy reasons.

The UTPR case before the Belgian Constitutional Court

Quinn informed the panel that there is a case in Belgium that involves a challenge to the EU Pillar Two rules, specifically the UTPR, under the Charter of Fundamental Rights of the European Union. A precedent arose in the case concerning Directive 2018/822, otherwise known as the DAC6 case, in which the Court of Justice of the European Union (CJEU) found that certain reporting measures conflicted with the EU Charter. The current challenge has been brought by the American Free Enterprise Chamber of Commerce, alongside US and Belgian interests, with a judgment expected from the CJEU within the next 12 to 18 months. A ruling against the UTPR could have significant consequences for the Pillar Two project in the EU. Lukkien pointed out that Member States are preparing submissions to the CJEU, in principle, to support the UTPR.

Tax disclosures: transactions

Bhogal explained that Pillar Two introduces significant technical and administrative complexities in regard to cross-border transactions, especially in situations where some entities are in scope and others are not, or where consolidation tests affect the entity status, such as in regard to private equity (PE) or fund structures. Issues commonly arise around intercompany settlements, portfolio companies and accounting versus tax treatment differences. Transactional considerations often involve bespoke deal mechanics. While standard risk allocation provisions, shareholder agreements and joint venture arrangements largely remain conventional, specific provisions may be needed to allocate Pillar Two-related risks appropriately among shareholders, ensuring that the relevant compliance, reporting and potential top-up tax obligations are correctly managed.

Quinn then explained that Ireland is a major hub for securitisations, including collateralised loan obligations (CLOs), and has developed specific guidance on these structures, prompted in part by engagement with the Department of Finance. Pillar Two has influenced this process, effectively limiting national discretion, as the OECD quickly issued rules ensuring that securitisation entities are not subject to entity-level tax and that bondholders are treated appropriately. In practice, Ireland now requires representations from equity and subnote holders regarding their consolidation positions, which can be complex.

Lastly, Bhogal added that the tax insurance market for M&A transactions has evolved significantly, moving from broad representations and warranties coverage towards more specialised policies that address specific risks. Historically, certain areas, like secondary liabilities, transfer pricing and Pillar Two, were considered a ‘no-go’ for insurers. Recently, however, there is growing appetite to explore these types of coverage in particular circumstances, although executing such policies remains challenging and may involve premium pricing that pushes such risks into an uninsurable category.

Conclusion and final remarks

The discussion that took place between the speakers underscores the growing complexity and global coordination challenges arising from Pillar Two, particularly the global minimum tax. While the use of a side-by-side approach may benefit US multinationals in the future, it may introduce fragmentation, compliance and treaty interaction risks. Pillar Two implementation continues to reshape tax regimes and transactions all over the world. It is very challenging for all regions to implement and enforce the rules coherently. The impact of these rules on each jurisdiction may differ. It’s clear that discussions arising from these difficulties will continue.