Tax Planning
Case Study: How Pillar Two is Reshaping Multinational Tax Strategy
With the EU’s Pillar Two now active, global minimum tax rules are forcing multinationals to rethink structure and finance functions.
By NomadicTax Research Team • 5-8 min read • September 16, 2026
## Pillar Two in EU Law: A Quick Refresher
The EU implemented the **Pillar Two Directive** (EU Directive 2022/2523) effective **1 January 2024**, establishing a **15% global minimum tax rate** for multinational and large domestic groups. ([ec.europa.eu](https://ec.europa.eu/commission/presscorner/api/files/document/print/en/ip_23_6712/IP_23_6712_EN.pdf?utm_source=openai))
## What Companies Are Changing—and Why
- Groups structured with low-tax subsidiaries are facing “top-up tax” in their parent’s jurisdiction if foreign subsidiaries are taxed below 15%.
- Huge incentive to improve transparency, record losses carry-forward, and reorganise financing to avoid benefiting top-ups.
- Cross-border tax planning around income shifting or royalty routing comes under particular scrutiny.
## Real-World Example: A Manufacturing Group in Poland & Ireland
A midsized firm with a Polish parent and Irish subsidiary pays royalties into Ireland. If the royalty income in Ireland is taxed effectively below 15% due to preferential IP regimes, the Polish parent may have to apply top-up tax to make up the difference. This pushes companies to examine **effective tax rate (ETR)** and ensure IP or royalty incomes earn enough tax base or pay enough to exceed 15%.
## What Changes in Planning Strategy
- Reevaluate transfer pricing: royalty rates must reflect economic substance and ensure income is taxed appropriately both in source and destination jurisdictions.
- Limit aggressive “box regime” or other preferential tax regimes unless they align with EU and OECD rules.
- Keep tight tabs on country-by-country reporting, consistent documentation, and up-to-date with national transposition of Pillar Two.
## Opportunities & Risks
**Opportunities**:
- Restructuring entities can consolidate functions to avoid low tax pitfalls
- Proactive tax base planning can generate savings if income is taxed above minimum
- Improved compliance and forward-looking forecasting reduce exposure to penalties
**Risks**:
- Delay or mistransposition in national law can create mismatch or uncertainty
- Penalties for non-compliance can be severe under EU rules
## Action Steps for Global Groups
- Conduct a detailed audit of all subsidiaries’ effective tax rates, including temporary incentives and grants.
- Ensure transfer pricing policies are well documented and defensible.
- If using IP income or R&D credits, model out whether those yield ETR-compliant outcomes.
- Monitor the EU Commission infringement proceedings (see policies) against Member States not complying with rules like the Parent-Subsidiary Directive—they may impact competitive landscape.