BEPS Summary: 15 Actions, Two Pillars, and 15% Minimum Tax

Base Erosion and Profit Shifting, known as BEPS, is the OECD and G20 project that rewrote international tax rules to stop multinational groups from routing profits into low-tax or no-tax jurisdictions. It began in 2015 with 15 action items aimed at specific loopholes and has since grown into a two-pillar framework whose most consequential piece is a 15 percent global minimum corporate tax. More than 145 countries and jurisdictions take part through the Inclusive Framework, and the rules now reach any multinational group with consolidated revenue of at least 750 million euros.¹

Why the Rules Were Rewritten

International tax rules were built for an era when a company’s taxable presence meant a factory, a warehouse, or an office. Those rules never anticipated that a tech company could earn billions in a country without owning a desk there, or that a pharmaceutical group could park its most valuable patents in a jurisdiction with a 0 percent rate on royalty income.

Most BEPS planning works by exploiting mismatches between different countries’ tax systems. A payment might be deductible in one country but untaxed in the receiving country. An entity might be treated as a corporation in one jurisdiction and a partnership in another. The result is “double non-taxation,” where income slips between two systems and gets taxed by neither. The OECD estimated the annual revenue loss at between $100 billion and $240 billion, which supplied the political momentum for the project.

The 15 Action Items

The original 2015 package organized reforms into 15 actions grouped around three themes: making domestic rules more coherent across borders, requiring real economic substance behind cross-border structures, and improving transparency so tax authorities can see the full picture.

Action 1 addressed the digital economy and concluded it couldn’t be ring-fenced, since digitalization is the economy at this point; that conclusion eventually fed into Pillar One.² Action 2 neutralizes hybrid mismatches by denying a deduction where the corresponding income isn’t taxed, and it extends to imported mismatches routed through a third jurisdiction.³ Action 3 strengthens controlled foreign company rules so parents cannot defer tax indefinitely on income parked in overseas subsidiaries. Action 4 caps net interest deductions in a corridor of 10 to 30 percent of EBITDA, addressing the classic technique of loading a high-tax subsidiary with intercompany debt.⁴

Action 5 targets harmful practices like patent boxes and secret rulings. Action 6 blocks treaty shopping. Action 7 tightens the definition of permanent establishment so that commissionaire arrangements and fragmented operations can no longer avoid creating a taxable presence.⁵ Actions 8 through 10 align transfer pricing outcomes with actual value creation, covering intangibles, risk allocation, and other high-risk transactions such as management fees. Actions 11 through 14 address data collection, mandatory disclosure of aggressive tax arrangements, transfer pricing documentation, and dispute resolution. Action 15 produced the Multilateral Instrument.

The Multilateral Instrument

Updating thousands of bilateral tax treaties one by one would have taken decades. The Multilateral Instrument (MLI) lets governments modify their existing treaties simultaneously by opting into standardized provisions. As of 2025, 107 jurisdictions have signed or deposited instruments of ratification.⁶ The MLI does not create a single global treaty. It layers agreed changes on top of each pair of countries’ existing agreement, and each country can make reservations, so the actual modifications vary by treaty pair.

Pillar One: Reallocating Taxing Rights

Pillar One answers the question the original 15 actions left open: which country gets to tax what share of a multinational’s profit. It has two components.

Amount A would reallocate a portion of residual profit from the very largest multinationals to the countries where their customers are, whether or not the company has a physical presence there. It targets groups with global revenue above 20 billion euros and profitability above 10 percent of revenue, and only 25 percent of the profit exceeding that 10 percent margin gets redistributed to market jurisdictions.⁷ Extractive industries and regulated financial services are carved out.⁸ The multilateral convention needed to implement Amount A has not been finalized, and as of early 2025 the OECD acknowledged outstanding issues. Until it takes effect, many countries continue to apply or consider unilateral digital services taxes.

Amount B is narrower and more practical. It provides a standardized pricing framework for routine marketing and distribution activities carried out by local subsidiaries, using a three-step process to determine a return on sales. It matters most for jurisdictions that lack the administrative capacity to audit complex transfer pricing arrangements.⁹

Pillar Two: The 15 Percent Global Minimum Tax

Pillar Two is the piece of BEPS with real teeth right now. Its Global Anti-Base Erosion (GloBE) rules impose a minimum effective tax rate of 15 percent on multinational groups with consolidated revenue of at least 750 million euros.¹⁰ The threshold must be met in at least two of the four fiscal years preceding the year being tested.¹¹ Where a group’s income in any country is taxed below the floor, the framework collects the difference through a coordinated system of top-up taxes.

Income Inclusion Rule

The Income Inclusion Rule (IIR) is the primary enforcement mechanism. When a subsidiary’s effective tax rate in a given country falls below 15 percent, the parent company’s jurisdiction imposes a top-up tax to bring the rate to the minimum. The calculation runs country by country: total GloBE income and qualifying taxes in a single jurisdiction, compute the effective rate, and if it’s below 15 percent, apply the difference to the group’s excess profit there. The IIR began taking effect for fiscal years starting on or after December 31, 2023, in countries that adopted the EU directive and in several early movers including Australia and South Korea.¹⁰

Undertaxed Profits Rule

The Undertaxed Profits Rule (UTPR) is the backstop. If the parent company’s country hasn’t adopted the IIR, other jurisdictions in the group can collect the top-up tax instead, typically by denying deductions or making equivalent adjustments. The UTPR started applying for fiscal years beginning on or after December 31, 2024, in most implementing jurisdictions.¹² Together, the IIR and UTPR interlock so that one of them will capture the undertaxed income somewhere in the corporate chain.

Qualified Domestic Minimum Top-Up Tax

Many countries have responded by enacting their own domestic minimum top-up tax. A Qualified Domestic Minimum Top-Up Tax (QDMTT) lets the source country collect the top-up itself before the IIR or UTPR kicks in. When a QDMTT that meets the OECD’s qualifying standards is in place, the top-up under the IIR and UTPR for that jurisdiction is reduced to zero. Most EU member states now have QDMTTs in effect, and jurisdictions including Switzerland, Singapore, and Hong Kong have enacted their own versions.

Subject to Tax Rule

The Subject to Tax Rule (STTR) operates on a different track. It’s a treaty-based mechanism that protects developing countries’ right to tax certain intra-group payments, such as interest, royalties, and service fees, when those payments flow to a jurisdiction where they’re taxed at a nominal rate below 9 percent.¹³ Where the GloBE rules look at effective tax rates on overall income, the STTR targets specific categories of related-party payments and lets source countries “tax back” when the recipient jurisdiction barely taxes the income.

How the Effective Tax Rate Is Calculated

The GloBE effective tax rate is not the same as a country’s headline corporate rate. The calculation starts with each entity’s financial accounting net income or loss, then applies specific adjustments to arrive at “GloBE income.” Adjusted covered taxes, which exclude items like deferred tax liabilities from certain transactions, are divided by the GloBE income for that jurisdiction to produce the effective rate. If the result is below 15 percent, the top-up tax applies to excess profit, which is GloBE income minus a substance-based income exclusion.¹⁰

The substance-based income exclusion (SBIE) carves out a portion of income attributable to real payroll costs and tangible assets in a jurisdiction. The reasoning: if a company has meaningful employees and physical assets in a country, some of its profit reflects genuine local activity rather than shifting. The long-term rate is 5 percent of eligible payroll plus 5 percent of the net book value of tangible assets. During a transition running through 2032, those percentages start higher, roughly 10 percent for payroll and 8 percent for tangible assets in the first year, and gradually decline.¹⁴

Transitional Safe Harbours

The full GloBE calculation is heavy, so the OECD introduced transitional safe harbours that let groups skip it for jurisdictions that clearly pose no risk. Under the transitional country-by-country report (CbCR) safe harbour, the top-up tax for a jurisdiction is deemed zero if any one of three tests is met: the group has less than 10 million euros of revenue and less than 1 million euros of profit in that jurisdiction; the group’s simplified effective tax rate meets or exceeds a transition rate (15 percent for fiscal years starting in 2023 and 2024, 16 percent for 2025, and 17 percent for 2026); or the group’s profit is equal to or less than its substance-based income exclusion in that jurisdiction.¹⁵

The safe harbour covers fiscal years beginning on or before December 31, 2026, and ending no later than June 30, 2028. One catch: if a group chooses not to apply the safe harbour for a given jurisdiction in any year when it’s subject to the GloBE rules, it can’t claim it for that jurisdiction in later years.

Who Is In Scope, and Who Is Excluded

The 750 million euro revenue threshold is the main gateway, measured against the consolidated financial statements of the ultimate parent entity in at least two of the four fiscal years before the tested year. Groups below the line generally don’t face the GloBE rules or the most intensive documentation, though individual countries may impose lower thresholds for their own CFC rules or other domestic measures.¹¹

Certain types of entities are excluded from the GloBE rules entirely, even if they belong to a group above the revenue threshold:

Governmental entities
International organisations
Non-profit organisations
Pension funds
Investment funds that are the ultimate parent entity of the group
Real estate investment vehicles that are the ultimate parent entity of the group

The exclusion extends to certain entities owned by these excluded organizations that hold assets or invest funds and carry out only ancillary activities. An excluded entity’s revenue still counts toward the 750 million euro threshold, and the exclusion doesn’t protect other non-excluded subsidiaries in the same group.¹⁴

Documentation: The Three-Tier System

BEPS transparency relies on a three-tiered documentation system that shows tax authorities how a multinational operates, where it reports profits, and whether those allocations make economic sense.¹⁶

The Country-by-Country Report is the broadest. It requires a jurisdiction-level breakdown of total revenue split between related-party and third-party transactions, profit or loss before tax, income tax paid on a cash basis, and accrued tax for the current year. It also captures markers of real activity: number of full-time-equivalent employees and net book value of tangible assets. Large profits in a country with minimal employees and assets are a red flag.

The Master File provides a group-wide overview across five areas: organizational and ownership structure, each major business line and how it generates revenue, the group’s approach to developing and owning intangibles, intercompany financial arrangements, and the group’s overall financial and tax positions, including advance pricing agreements or tax rulings. It is shared with all relevant tax authorities, so it has to tell a consistent story.¹⁶

The Local File zooms in on a single jurisdiction: material intercompany transactions involving the local entity, amounts, the economic analysis supporting the pricing, financial statements for the local entity, and a description of local management. Keeping the three documents consistent takes serious coordination, and tax authorities cross-reference them. Inconsistencies are among the fastest ways to trigger an audit.

Where Implementation Stands

Pillar Two is live and expanding. The IIR took effect for fiscal years beginning on or after December 31, 2023, in all EU member states under the EU Minimum Tax Directive and in non-EU jurisdictions including Australia, South Korea, and Japan. The UTPR followed roughly a year later. By 2025, more than 30 jurisdictions had enacted domestic legislation implementing some or all of the GloBE rules, with more expected. Many of the same countries also adopted QDMTTs to retain the right to collect top-up tax on locally earned income before other jurisdictions can claim it.

Pillar One has had a rougher path. Amount B’s simplified transfer pricing guidance was released in 2024 and is being adopted on a rolling basis. Amount A, the profit-reallocation mechanism, remains unfinished. The multilateral convention has not been signed, and several major economies have expressed reservations about its design. The standstill on unilateral digital services taxes that many countries agreed to in principle continues to fray.

The United States and Pillar Two

The U.S. position adds a wrinkle. The U.S. already has a regime aimed at undertaxed foreign income, the Global Intangible Low-Taxed Income (GILTI) tax enacted in 2017. GILTI and the GloBE rules differ in a critical way: GILTI calculates tax on a blended, worldwide basis, pooling all foreign income and credits, while the GloBE rules calculate the effective tax rate separately for each country. Under blending, excess taxes paid in a high-tax jurisdiction can offset undertaxed income in a low-tax one, potentially letting some low-taxed income escape the minimum.¹⁷

This mismatch means GILTI as currently structured likely does not qualify as a conforming IIR under the GloBE rules. If other countries apply the UTPR, U.S.-parented multinationals could face top-up taxes collected by foreign jurisdictions on income that the U.S. chose to tax at a lower effective rate. Congress faces pressure to align the domestic regime with the GloBE framework, though the timeline is uncertain.