Pillar Two global minimum tax and IAS 12

Pillar Two changed the tax charge of thousands of large groups from 2024, and its rules keep evolving, most recently with the side-by-side package agreed in January 2026. This guide explains how the GloBE rules work, how IAS 12 accounts for top-up tax, and what has changed for US-parented groups.

By Muhammad Bilal, Chartered Accountant. Reviewed by Awais Jameel, Chartered Accountant. Checked against official sources on . 3 minute read.

Short answer

Pillar Two is the OECD's global minimum tax: groups with consolidated revenue of at least EUR 750 million must pay a top-up tax where their effective tax rate in a jurisdiction is below 15%. Under the 2023 IAS 12 amendments, Pillar Two income taxes are within IAS 12, but companies apply a mandatory temporary exception: they do not recognise or disclose deferred taxes related to Pillar Two. Top-up tax is recognised as current tax, with separate disclosure.

At a glance

Minimum rate
15% per jurisdiction
Who
Groups with revenue of EUR 750 million or more
Top-up taxes
QDMTT, IIR, UTPR
Deferred tax
Mandatory temporary exception
Top-up tax in accounts
Current tax
US-parented groups
IIR and UTPR exempt from 2026
Pillar Two global minimum tax and IAS 12Minimum rate: 15% per jurisdiction; Who: Groups with revenue of EUR 750 million or more; Top-up taxes: QDMTT, IIR, UTPR; Deferred tax: Mandatory temporary exception; Top-up tax in accounts: Current tax; US-parented groups: IIR and UTPR exempt from 2026.KEY FACTS AT A GLANCEPillar Two global minimum tax and IAS 12Minimum rate15% per jurisdictionWhoGroups with revenue ofEUR 750 million or moreTop-up taxesQDMTT, IIR, UTPRDeferred taxMandatory temporaryexceptionTop-up tax in accountsCurrent taxUS-parented groupsIIR and UTPR exempt from2026Checked against official sourcesTax BakersPillar Two global minimum tax and IAS 12Minimum rate: 15% per jurisdiction; Who: Groups with revenue of EUR 750 million or more; Top-up taxes: QDMTT, IIR, UTPR; Deferred tax: Mandatory temporary exception; Top-up tax in accounts: Current tax; US-parented groups: IIR and UTPR exempt from 2026.KEY FACTS AT A GLANCEPillar Two global minimum tax andIAS 12Minimum rate15% per jurisdictionWhoGroups with revenue of EUR 750 million ormoreTop-up taxesQDMTT, IIR, UTPRDeferred taxMandatory temporary exceptionTop-up tax in accountsCurrent taxUS-parented groupsIIR and UTPR exempt from 2026Checked against official sourcesTax Bakers
Key facts at a glance, as set out in this guide.

What is Pillar Two?

The OECD/G20 Inclusive Framework's Global Anti-Base Erosion (GloBE) rules set a 15% minimum effective tax rate for each jurisdiction where a large group operates. They apply to groups with consolidated revenue of at least EUR 750 million in at least two of the previous four years. If a group's GloBE effective tax rate in a jurisdiction is below 15%, a top-up tax brings it up to 15%, collected through three mechanisms:

  • Qualified domestic minimum top-up tax (QDMTT): the low-tax country collects the top-up itself.
  • Income inclusion rule (IIR): the parent's country collects top-up tax on low-taxed subsidiaries.
  • Undertaxed profits rule (UTPR): a backstop that lets other countries collect top-up tax not collected otherwise.

How did the rules develop?

Pillar Two: key datesPillar Two: key datesOct 2021Two-pillaragreementMay 2023IAS 12amendments2024First rulesin forceJan 2026Side-by-sidepackage
From the 2021 agreement to the 2026 side-by-side package.

How does IAS 12 account for Pillar Two?

The IASB amended IAS 12 in May 2023. Pillar Two legislation creates income taxes within IAS 12, but companies apply a mandatory temporary exception: they neither recognise nor disclose information about deferred tax assets and liabilities related to Pillar Two income taxes, and must disclose that they have applied the exception. Top-up tax is therefore accounted for as current tax in the period it relates to.

An example: a low-tax subsidiary

A group's subsidiary in a country with a 9% tax rate earns GloBE profit of 10 million and pays 0.9 million of local tax. Its GloBE effective tax rate is 9%, so the top-up percentage is 6 points. Ignoring the substance-based income exclusion, which reduces the profit subject to top-up tax by a return on payroll and tangible assets, the top-up tax is 0.6 million. If the country has a QDMTT, it collects the 0.6 million locally; otherwise the parent's IIR does. Either way, the group recognises 0.6 million of current tax expense for the year and no deferred tax for Pillar Two.

What must be disclosed?

  • That the temporary exception has been applied.
  • Current tax expense or income related to Pillar Two income taxes, separately.
  • Where legislation is enacted or substantively enacted but not yet in effect, known or reasonably estimable information that helps users understand the group's exposure, such as the proportion of profits that may be subject to top-up tax and the average effective tax rate on those profits.

What is the 2026 side-by-side package?

Following a G7 agreement in June 2025, the Inclusive Framework agreed a side-by-side package on 5 January 2026. It introduced a side-by-side safe harbour that, for fiscal years starting on or after 1 January 2026, exempts groups whose ultimate parent is in a jurisdiction with a qualified side-by-side regime from the IIR and UTPR. The United States is the only jurisdiction recognised so far. Such groups remain subject to QDMTTs where countries have adopted them, and Pillar Two obligations for 2024 and 2025 are unchanged. The package also added simplifications and a safe harbour for substance-based tax incentives.

For an IFRS reporter, the accounting is unchanged: top-up tax that still applies, mainly QDMTTs, is current tax, and the deferred tax exception continues. Rules and national legislation are still developing, so check the current position in each jurisdiction.

How does US GAAP treat it?

Under US GAAP, the FASB staff indicated that Pillar Two top-up taxes are treated like an alternative minimum tax: recognised in the period incurred, with no deferred tax remeasurement. See IAS 12 vs ASC 740 and IAS 12 explained.

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Questions people ask

What is Pillar Two?

The OECD's global minimum tax rules, requiring large groups to pay top-up tax where their effective tax rate in a jurisdiction is below 15%.

Is deferred tax recognised for Pillar Two under IAS 12?

No. The 2023 amendments introduced a mandatory temporary exception from recognising and disclosing deferred taxes related to Pillar Two.

How is Pillar Two top-up tax accounted for under IFRS?

As current tax in the period it relates to, with separate disclosure of Pillar Two current tax.

Are US-parented groups exempt from Pillar Two?

From 2026 the side-by-side safe harbour exempts them from the IIR and UTPR, but qualified domestic minimum top-up taxes can still apply.

Sources

Every fee, date and rule on this page was taken from these official and primary sources.

  1. IFRS Foundation: IAS 12 Income Taxes
  2. OECD: Global minimum tax (Pillar Two)

Rules and fees change. If you are reading this long after October 4, 2026, confirm the figures with the source before you rely on them.

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This guide is general information. It is not tax or legal advice for your situation.