Digital Services Taxes and OECD’s Two-Pillar Solution: 2026 Status

The OECD’s Two-Pillar Solution and digital services taxes are now moving on separate tracks. The Two-Pillar Solution is a global agreement, backed by more than 140 countries, designed to replace the patchwork of national digital services taxes with a single framework for taxing multinational profits. As of 2026, only half of that bargain is working: Pillar Two’s 15% global minimum tax is in force across dozens of jurisdictions, while Pillar One, which was meant to reallocate taxing rights to the countries where customers actually live, has stalled. The standstill that paused new digital services taxes has expired, and countries are resuming or expanding those levies instead of waiting for a deal that may never arrive.¹

The Problem the Two Pillars Were Built to Solve

International tax treaties assume a company can be taxed in a country only if it has a physical presence there. That assumption held up when cross-border business meant offices, factories, and warehouses. It broke once a platform could serve millions of users in a country without employing anyone or renting anything locally. Revenue flowed in; taxing rights stayed with the headquarters jurisdiction.

The mismatch let large multinationals route profits through low-tax jurisdictions and left market countries watching economic activity they could not tax. The OECD and G20 responded through the Inclusive Framework on Base Erosion and Profit Shifting, which now includes more than 140 countries.² In October 2021, 137 members agreed to a Two-Pillar Solution: Pillar One would reallocate taxing rights to market countries, and Pillar Two would set a global minimum tax rate. That statement is still the foundation of everything that has followed.

Pillar One: Reallocating Taxing Rights to Market Countries

Pillar One is aimed at the largest and most profitable multinationals. Its centerpiece, Amount A, would give market countries a new right to tax a share of a company’s residual profits, even without any physical presence.³ The mechanics are formulaic: take the multinational’s total profit, treat everything up to a 10% margin as routine, and reallocate 25% of the profit above that baseline to the countries where revenue is sourced.⁴

A companion piece, Amount B, simplifies transfer pricing for routine in-country marketing and distribution activities by applying a standardized return rather than negotiating an arm’s-length price case by case.⁵ This matters most for developing countries that lack the resources to litigate transfer pricing disputes.

Who Would Be Covered

Amount A applies only to companies with global revenue above €20 billion and profitability above 10%.³ At that threshold, roughly 100 multinationals worldwide would be in scope. The revenue threshold is scheduled to drop to €10 billion after seven years if implementation succeeds, which would pull in many more groups. Extractive industries and regulated financial services are carved out.

Why Pillar One Is Stuck

The Multilateral Convention needed to implement Amount A has not opened for signature.⁶ A June 2024 deadline for finalizing the text passed without agreement, and as of September 2025 the European Commission described discussions as “on hold.”¹ Even if a text is agreed, the treaty needs ratification by at least 30 jurisdictions that together host the headquarters of at least 60% of the multinationals expected to be in scope.⁷ Political headwinds, particularly from the United States, make that threshold hard to reach.

Pillar Two: The 15% Global Minimum Tax

Pillar Two is already law in much of the world. The Global Anti-Base Erosion (GloBE) rules set a 15% floor on the effective tax rate paid by large multinationals in every country where they operate.⁸ When a group’s effective rate in a jurisdiction falls below 15%, other countries can collect the difference through a top-up tax. The goal is to put a floor under tax competition.

The rules work through three interlocking mechanisms. A parent company’s home country applies an Income Inclusion Rule to top up tax on low-taxed foreign subsidiary income. If the parent’s country hasn’t adopted the rules, an Undertaxed Profits Rule (UTPR) lets other countries where the group operates collect the top-up instead.⁸ A country can also enact a Qualified Domestic Minimum Top-up Tax to keep the revenue itself, and that domestic tax takes priority in the rule order.⁹

The Substance Carve-Out

Not every dollar of profit is subject to the top-up. A substance-based income exclusion lets a company exclude 5% of the carrying value of its tangible assets and 5% of its payroll costs in each jurisdiction.⁸ During a ten-year transition, those percentages start at 10% for payroll and 8% for tangible assets and decline to the permanent 5% rate. The carve-out rewards real operations over paper presence.

Who Is In Scope

Pillar Two applies to groups with consolidated annual revenue of at least €750 million in at least two of the four preceding fiscal years.⁸ Groups below that threshold are outside the framework. Even inside it, certain entities are fully exempt: government bodies, international organizations, nonprofits, pension funds, and investment funds serving as the ultimate parent.¹⁰ International shipping income is also excluded. At the jurisdiction level, a small-entity rule applies where a group’s local operations produce less than €10 million in revenue and less than €1 million in profit or loss.

Digital Services Taxes: The Standstill That Collapsed

Before the Two-Pillar Solution existed, several countries stopped waiting and imposed their own digital services taxes: flat levies on revenue from digital advertising, data-driven services, or online marketplaces. France went first. The United Kingdom, Italy, Spain, Austria, and Turkey followed. Rates typically run between 1.5% and 7.5% of in-country digital revenue and apply regardless of whether the company is profitable.

The October 2021 agreement included a standstill: no new digital services taxes, and existing ones would be rolled back once the Multilateral Convention entered into force. The moratorium was supposed to hold through December 31, 2023, or until the MLC took effect, whichever came first.⁴ The MLC never materialized, and the standstill lapsed. Countries with digital services taxes on the books kept collecting. Italy expanded its levy by removing domestic revenue thresholds. Others that had been waiting began reconsidering unilateral measures of their own.

That is the central tension in 2026. Pillar One was the grand bargain: market countries would get new taxing rights, and in exchange they would repeal their digital services taxes. Without Pillar One there is no carrot, and the stick of retaliatory tariffs only escalates conflict. The patchwork of national DSTs is back and growing.

Where Implementation Stands in 2026

Pillar Two is the success story. Dozens of countries have enacted domestic GloBE legislation, including the United Kingdom, most EU member states, Australia, South Korea, Japan, Singapore, Switzerland, and Canada. The EU adopted its minimum tax directive in late 2022, and most member states have transposed it into domestic law. The United Arab Emirates, Qatar, and Oman have also enacted GloBE legislation, a notable move for jurisdictions historically known for low or zero corporate tax rates.

Pillar One is a text without a treaty. The MLC has not opened for signature, negotiations are on hold, and political will has fractured. The practical result is a two-speed world: the global minimum tax is operational and expanding, while the reallocation of taxing rights to market countries exists only on paper.

How This Affects the United States

The United States has not implemented Pillar Two and shows no sign of doing so. That creates a concrete problem. The U.S. already taxes certain foreign earnings of American multinationals through GILTI (Global Intangible Low-Taxed Income), but the effective GILTI rate in 2026 is roughly 13.125%, below the 15% Pillar Two floor.¹¹ Foreign countries applying the UTPR could claim the right to collect top-up tax on that low-taxed income. GILTI also uses global blending, averaging high-tax and low-tax income together, which compounds the mismatch with Pillar Two’s country-by-country approach.

The U.S. response has been confrontational. The Treasury Department views the UTPR as extraterritorial. Congress folded a retaliatory provision, Section 899, into the “One Big Beautiful Bill Act,” imposing a surtax of up to 20% on U.S.-taxable income of companies and individuals from countries that apply the UTPR or digital services taxes to American firms.¹²

In June 2025, the G7 announced a framework for a “side-by-side” system that would fully exclude U.S.-parented groups from both the UTPR and the Income Inclusion Rule on their domestic and foreign profits. In return, the United States committed to removing Section 899.¹³ Whether the deal holds is an open question. Legislative negotiations continue, and the broader Inclusive Framework membership still needs to agree. The stakes are large: one estimate projects the United States could forfeit $144 billion in tax revenue over a decade if foreign countries collect Pillar Two top-up taxes that would otherwise flow to the IRS under an aligned domestic system.¹¹

What Multinationals Must Actually File

Groups in scope for Pillar Two face a new compliance layer: the GloBE Information Return. It requires detailed country-by-country data on effective tax rates, top-up tax liability, and any exclusions claimed. The filing deadline is 15 months after the end of the fiscal year, extended to 18 months for the first reporting year. For calendar-year groups, that meant the 2024 return was due by June 30, 2026.

The work behind that return is not trivial. Companies must maintain parallel calculations for each jurisdiction’s domestic tax system and for the GloBE rules, which use their own income definition based on financial accounting standards rather than local tax law. U.S. multinationals dealing with GILTI and the Corporate Alternative Minimum Tax add further layers.

To ease the transition, the OECD adopted transitional safe harbors that let companies use existing Country-by-Country Reporting data to demonstrate compliance without running the full GloBE calculation. A newer side-by-side safe harbor package took effect for fiscal years beginning on or after January 1, 2026. The Inclusive Framework plans a stocktake around 2029 to assess whether further simplification is needed.

What to Watch

The two pillars were designed as a package, and the package is falling apart. Pillar Two will keep expanding as more countries enact legislation and begin collecting top-up tax. Pillar One remains aspirational, and every month of delay strengthens the case for countries to keep or introduce their own digital services taxes. Multinationals are living with both systems at once: a global minimum tax that is here to stay, and a fragmented landscape of unilateral digital levies that was supposed to disappear. The practical work is tracking implementation jurisdiction by jurisdiction, building GloBE calculations into compliance systems, and planning for the possibility that the Pillar One reallocation never takes the form originally envisioned.

1
European Parliament. The Implementation of the OECD Global Agreement on Re-allocation of Taxing Rights
2
OECD. Base Erosion and Profit Shifting (BEPS)
3
OECD. Pillar One Amount A Fact Sheet
4
OECD. Statement on a Two-Pillar Solution to Address the Tax Challenges Arising from the Digitalisation of the Economy
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OECD. Pillar One – Amount B
6
OECD. Multilateral Convention to Implement Amount A of Pillar One
7
OECD. Multilateral Convention to Implement Amount A of Pillar One
8
OECD. FAQs on Model GloBE Rules
9
OECD. Global Anti-Base Erosion Model Rules (Pillar Two)
10
Congressional Research Service. The Pillar 2 Global Minimum Tax: Implications for US Tax Policy
11
The Budget Lab at Yale. International Tax in the Age of Pillar 2
12
House Committee on Ways and Means. The One Big Beautiful Bill Fights Back Against Unfair Taxation by Foreign Governments
13
U.S. Department of the Treasury. G7 Statement on Global Minimum Tax