Pillar Two for CFOs - How Global Minimum Tax Reshapes Financial Strategy in 2025

As a CFO, managing financial risk across borders is second nature. But the OECD's Pillar Two initiative introduces a new era of international tax enforcement that finance leaders need to be prepared for. With over 50 jurisdictions having enacted or proposed legislation to implement the GloBE rules, your effective tax rate, profit allocation, and strategic tax planning are all under the microscope.

Pillar Two introduces a 15% minimum effective tax rate on profits earned in each jurisdiction by large multinational groups (generally those with consolidated revenues over €750 million). Thereby reshaping the taxation of income across jurisdictions. This change impacts not only tax departments but entire finance functions, including reporting, forecasting, transfer pricing, and investor communication. In this blog, we examine how CFOs can lead the response to Pillar Two, minimise exposure, and future-proof their tax and finance strategy.

Why CFOs Must Take the Lead on Pillar Two

The OECD’s Base Erosion and Profit Shifting (BEPS) 2.0 framework consists of two pillars:

• Pillar One: Reallocates taxing rights on digital and consumer-facing businesses

• Pillar Two: Introduces a global minimum tax rate of 15% for MNEs with consolidated revenues of €750 million or more

The aim is to reduce the incentive for profit shifting to low- or no- tax jurisdictions. The mechanism? Under Pillar Two, a top-up tax applies when the effective tax rate in a jurisdiction, calculated under GloBE rules, falls below 15%. This ensures that profits in low-tax jurisdictions are effectively brought up to the global minimum.

For CFOs, the headline rate is just the start. The devil is in the details: deferred tax accounting, temporary and permanent differences, limited eligibility of tax credits, and narrow carve-outs all contribute to compliance risk.

But beyond compliance, finance leaders must assess how Pillar Two affects value creation and tax strategy: Where are profits recognised? Is the current tax structure sustainable? And how will this influence future investment and reporting decisions?

With implementation timelines varying across jurisdictions, CFOs are uniquely positioned to coordinate across tax, legal, and financial planning teams to manage risk and shape the group’s long-term response.

What’s Your Exposure? Why GloBE ETR Should Be on Every CFO Dashboard

One of the first questions a CFO must ask is: What is our exposure to top-up tax?

This involves calculating the GloBE Effective Tax Rate (ETR) for each jurisdiction in which the group operates.

The ETR is determined under specific OECD rules that adjust both income and covered taxes. If a jurisdiction's GloBE ETR falls below 15%, the group may be subject to top-up tax, under one of two mechanisms:

• Income Inclusion Rule (IIR) – Applied at the ultimate parent entity level. This requires top-up tax to be paid in the parent's jurisdiction

• Undertaxed Profits Rule (UTPR) – Acts as a backstop by reallocating the top-up tax to jurisdictions with UTPR legislation, if the IIR does not apply

CFOs should pay close attention to structural exposures, particularly in jurisdictions or entity types that historically benefited from lower effective taxation, such as:

• Holding structures in low-tax countries (e.g., Cayman Islands, Ireland pre-2024 changes)

• IP-rich subsidiaries that rely on preferential regimes

• Principal entities operating under limited-risk distributor (LRD) or commissionaire models

Each of these structures should be reviewed through a new lens:

• Will this jurisdiction’s GloBE ETR fall below 15%?

• Will the group’s current profit allocation model stand up to scrutiny under the new rules?

A Pillar Two-ready dashboard should make exposure visible at the jurisdictional level. Enabling CFOs to model impacts and coordinate across tax, legal, and commercial teams.

Is Your Finance Stack Ready for GloBE Compliance?

The scope of Pillar Two goes beyond just tax calculations. It requires a fundamental review of your finance and data infrastructure. Key areas of impact include:

• Data requirements: The GloBE Information Return (GIR), now being adopted in many jurisdictions, demands detailed entity-level data, including deferred tax attributes, covered taxes, and accounting adjustments.

• System upgrades: While some ERP and tax reporting systems can be adapted, many MNEs will need enhancements or new data layers to ensure they can track GloBE-specific adjustments.

• Forecasting complexity: GloBE calculations often diverge from local statutory or effective tax rates. This makes forward-looking tax modelling more difficult but more necessary.

• Governance and documentation: Tax authorities expect a clear audit trail, with reconciliations between statutory accounts, tax filings, and GloBE disclosures.

Meeting these standards requires coordinated action across tax, legal, finance, treasury, and IT. In many cases, cross-functional project teams will be needed to ensure the group’s internal controls, reporting processes, and governance frameworks are fit for purpose.

Board-level oversight is key. Pillar Two compliance should be on the risk committee’s radar, with scenario analyses and jurisdictional exposures presented at board level to inform tax strategy and capital allocation in 2025 and beyond.

Transfer Pricing: Your First Line of Defence

Transfer pricing is no longer just about meeting local file requirements. Under Pillar Two, transfer pricing is a first-line defence against group-level exposure to top-up taxes.

Why? Because transfer pricing determines where profits are recorded. And if those profits are allocated to jurisdictions with a GloBE Effective Tax Rate (ETR) below 15%, the group may face additional tax under the Pillar Two rules.

Key areas for CFO attention:

• Cost-plus service markups: Are internal service margins appropriately aligned with substance?

• IP structures: Is DEMPE (Development, Enhancement, Maintenance, Protection, Exploitation) truly aligned with where the IP is managed?

• CCAs (Cost Contribution Arrangements):Do these arrangements still reflect value creation and economic substance — and do they support a defensible GloBE outcome?

• Profit split and principal models: Are these structures still viable under GloBE, or do they create exposure due to low-tax locations or misaligned value drivers?

A proactive transfer pricing diagnostic can surface mismatches between where profits arise and where economic substance exists. This enables CFOs to realign intercompany flows and mitigate top-up tax exposure — before it materialises.

A 5-Step CFO Roadmap to Pillar Two Compliance and Resilience

Step 1: Assess Material Exposure

Model your GloBE Effective Tax Rate (ETR) by jurisdiction to identify low-tax risks, forecast potential top-up tax liabilities, and quantify EBITDA impact ahead of the 2025 effective dates.

Step 2: Strengthen Data Infrastructure

Ensure your ERP and tax systems can track GloBE-specific data points — including deferred taxes, covered taxes, entity-level adjustments, and applicable carve-outs — to support jurisdictional GloBE Information Returns (GIRs).

Step 3: Align Transfer Pricing Policies

Review IP ownership, service markups, and principal structures to ensure they reflect actual economic substance and functional alignment, reducing exposure to top-up tax under Pillar Two.

Step 4: Build Cross-Functional Governance

Create a Pillar Two steering committee with representation from tax, finance, legal, and IT to oversee implementation, maintain audit-ready documentation, and manage cross-border consistency.

Step 5: Communicate with Stakeholders

Prepare messaging for the board, audit committee, and investors that demonstrates both technical readiness and a clear financial strategy behind your group’s Pillar Two response.

Turning Compliance into Capital Market Confidence

CFOs are already fielding questions from investors and analysts around tax transparency and ESG. Pillar Two adds another layer of scrutiny:

• Will top-up taxes reduce margins or EBITDA?

• Is the group exposed to reputational risk in low-tax jurisdictions?

• What governance measures are in place to manage tax risk?

Articulating a clear and confident narrative around Pillar Two readiness can increase investor trust and reduce volatility. Particularly in markets sensitive to tax-related disclosures. CFOs who treat tax transparency as a board-level governance issue are better positioned to turn compliance into capital market credibility.

Case Study: Rebalancing a Principal Model

A SaaS company headquartered in the U.S. with subsidiaries in Singapore and Ireland historically used a principal model. Most IP was held in Ireland, and the Singapore entity operated on a cost-plus 10% model.

Post-Pillar Two modelling revealed:

• The Irish entity’s GloBE ETR was falling below 15% due to capital allowances

• Singapore’s cost base was understated relative to its strategic contribution

Outcome:

• The company restructured its intercompany service model

• Shifted some IP ownership to the U.S. to align with DEMPE functions

• Avoided €5M+ in potential top-up tax annually

This example highlights the importance of CFOs being proactive, rather than reactive.

This can significantly reduce Pillar Two exposure. For CFOs, timing matters: Defensive changes made early can avoid costly tax outcomes down the road.

From Risk to Resilience

Pillar Two isn't just a tax issue — it's a finance transformation moment. CFOs who act now will not only ensure compliance but can also turn tax transparency into a strategic asset. The clock is ticking. FY25 audits will be here before you know it.