Global Tax Shifts Turn Transfer Pricing Into a Pivotal Strategy

The global tax landscape is undergoing its most profound shift in decades. The 15% global minimum tax and the US’ global intangible low-taxed income regimes share the same purpose—ensuring that multinational groups pay a baseline level of tax, regardless of where they operate.

But the political reality, the economics of implementation, and the competing domestic priorities of major economies make alignment far from simple. The decision to exempt GILTI from full compliance with Pillar Two of the Base Erosion and Profit Shifting 2.0 framework marks a turning point, reshaping the original 2021 agreement and raising new questions for EU-based groups already subject to the 15% rate.

Most importantly, it raises a critical long-term question: Can a global minimum tax survive if the world’s largest economy applies its own version of the rules? In this new era of friction, is transfer pricing still just an optimization tool, or has it become the primary weapon in a global war over tax revenue?

Differing Regimes

The OECD’s global minimum tax applies to multinational groups with revenue above 750 million euros. Its core mechanism, the income inclusion rule and top‑up tax, ensures that if profits in any jurisdiction are taxed below 15%, another jurisdiction (usually the parent country) can collect the difference.

The policy aims to reduce the incentives for profit shifting, curb tax competition between states, and create a more predictable global system.

More than 140 jurisdictions signed on to the 2021 agreement, committing to coordinated implementation starting in 2024–2025. However, the US, as one of the major players, was never fully aligned.

GILTI was introduced under the 2017 Tax Cuts and Jobs Act. Its policy intent is similar to Pillar Two, but the mechanics differ substantially.

Because GILTI doesn’t meet core technical elements of Pillar Two (particularly jurisdictional blending and rate), it was originally expected that US groups would need significant adjustments, or that Congress would need to reform GILTI. Neither happened.

OECD’s Acceptance

The Organization for Economic Cooperation and Development accepted a temporary safe harbor recognizing GILTI as “broadly equivalent” for the transition period. This decision reflects political reality, not technical alignment, because:

Congress was unlikely to amend GILTI. Sweeping tax reform requires support that simply doesn’t exist in the current US political environment. Without congressional action, the US would remain outside Pillar Two.

A global deal without the US is weaker for everyone. If US-based multinationals remained outside the system, it would create competitive distortions, encourage lobbying for exemptions in other countries, and undermine the legitimacy of the global framework.

A “perfect” deal was less important than a functioning one. The original 2021 agreement was highly ambitious. OECD policymakers concluded that maintaining momentum was more critical than enforcing strict conformity.
In short, the alternative (no US participation) was worse for global tax coordination than a compromise.

Long-Term Viability

The global minimum tax framework is only as durable as the breadth and stability of its adoption. By granting the US an exemption by recognizing GILTI as “broadly equivalent,” the OECD has introduced three structural vulnerabilities.

First, it increases the likelihood of a fragmented global landscape, as other countries may pursue their own “Pillar Two lite” systems rather than adhering to a uniform rule set.

Second, the exemption exposes Pillar Two to US political volatility. Because GILTI is a domestic provision subject to shifts in congressional control, any future weakening or reversal would reverberate immediately across the global system, undermining the coherence of a framework that relies heavily on the participation of US-parented multinationals.

The third and perhaps most consequential risk is one of reduced legitimacy. Countries that have already committed significant political capital and compliance resources to implement the 15% minimum rate may begin questioning the fairness of a regime that allows the world’s largest economy, and home to many of the world’s largest multinationals, to operate under different rules.

If frustration builds among jurisdictions bearing the full compliance burden, collective willingness to maintain Pillar Two could erode over time. Together, these risks suggest that unless the OECD can reinforce alignment and ensure US policy stability, the long-term viability of the global minimum tax framework may depend less on technical design and more on geopolitical credibility.

A Fragmenting Consensus?

The original Pillar Two agreement was built on the premise of full global consistency. Every major jurisdiction would apply the same 15% minimum tax through a harmonized set of rules. The US GILTI exemption breaks that uniformity and introduces a new philosophy where an outcome is more important than a rule.

By accepting that a system with a lower rate and global blending can still be considered “broadly equivalent,” the OECD has signaled that domestic political realities will occasionally outweigh technical purity. This shift fundamentally changes the nature of the 2021 deal.

Once the US secured flexibility to preserve its own minimum tax architecture, it opened the door for other countries to argue that they also should be allowed tailored approaches. Jurisdictions with strong tax sovereignty instincts, such as China and India, now have political cover to negotiate hybrid systems that integrate domestic policies. However, China and India were already given de facto flexibility (administrative guidance, timing, and domestic rule design), so there is no need to open formal renegotiation.

Countries with established minimum tax regimes, such as Canada and Australia, may seek recognition of their domestic rules rather than adopt the full Pillar Two. To date, neither Canada nor Australia has indicated that they will seek formal recognition of their domestic minimum tax regimes as substitutes for the OECD Pillar Two rules. Both countries remain committed Inclusive Framework members, and both have already proposed (or enacted) legislation aligned with the GloBE Model Rules.

Even competitive hubs such as Singapore, Hong Kong, and Ireland could experiment with modified structures or alternative incentives, confident that strict uniformity is no longer an absolute expectation. There is no public indication that Singapore, Hong Kong, or Ireland intend to renegotiate Pillar Two or challenge the OECD framework.

In practice, these competitive hubs may experiment at the margins not by rejecting Pillar Two but by designing more refined domestic incentives, introducing substance-based reliefs, or leveraging safe harbors in ways that preserve their attractiveness for multinational investment. The new OECD administrative guidance, including the substance-based incentive safe harbor and side‑by‑side reliefs, explicitly allows countries to calibrate their regimes while remaining compliant.

For multinationals, the result is a landscape where GILTI, Pillar Two, and country‑specific equivalents may coexist for years, each with different blending rules, safe harbors, and interaction mechanics. This fragmentation raises modeling complexity and increases tax uncertainty—and it challenges the long‑term viability of the global minimum tax itself.

If the world’s largest economy can diverge, others will follow, and Pillar Two risks becoming less a single global standard and more a family of interoperable, but increasingly divergent, minimum tax regimes.

Implications for Businesses

EU member countries, including Germany, France, Italy, and the Netherlands are implementing the OECD rules strictly, without the flexibility granted to the US. This creates several consequences:

Competitive asymmetry. EU-based multinationals face a hard 15% rate while US groups may continue operating at effective rates closer to 10.5% under GILTI. This may disadvantage EU groups in highly mobile sectors such as technology, pharma, and digital services.

Additional compliance burden. EU‑based multinationals face a significantly heavier compliance burden under Pillar Two because they must perform full global anti-base erosion calculations, file detailed GloBE information returns, compute top‑up taxes on a jurisdiction‑by‑jurisdiction basis, and incorporate complex deferred tax accounting adjustments into their financial statements. These requirements demand substantial data gathering, systems upgrades, and coordination among tax, finance, and accounting teams.

By contrast, US multinationals operating under GILTI aren’t required to duplicate this level of reporting or align with the OECD’s administrative framework, avoiding many of the new documentation, disclosure, and modeling obligations that EU groups must now meet.

Emerging risks with state aid. If certain EU countries interpret or administer the rules more flexibly than others, differences may trigger state aid scrutiny, adding another layer of legal uncertainty.

Shifting investment decisions. EU companies will begin to reassess investments in traditionally low-tax member states because Pillar Two largely neutralizes the benefit of lower statutory rates. Multiple analyses, including an EU Parliament briefing, explicitly note that tax incentives in low-tax jurisdictions are undermined once top-up taxes apply, effectively removing the competitive advantage these countries offered.

What Remains Strong

Regardless of global minimum tax challenges, transfer pricing remains central to how multinational profits are allocated and taxed. Pillar Two still relies on transfer pricing outcomes to determine the GloBE tax base, meaning the location of profits, and ultimately any top-up tax due, continues to depend on traditional transfer pricing analyses.

As tax authorities intensify their focus on economic substance, companies can expect deeper scrutiny of DEMPE (development, enhancement, maintenance, protection, and exploitation) functions, supply‑chain structures, workforce location, and operational substance tests. In this environment, transfer pricing becomes the lens through which regulators evaluate whether profit aligns with real value creation, making it more important than before.

At the same time, transfer pricing is shifting from a compliance exercise to a strategic driver of global tax planning. Multinational groups will increasingly rely on transfer pricing structuring to manage effective tax rates across jurisdictions, mitigate Pillar Two exposure, and design operating models resilient to both tax and regulatory change.

Robust transfer pricing documentation also will become a critical defense tool. Even though GloBE calculations draw primarily from financial statements, tax authorities will still demand narrative support that explains why profits arise in particular jurisdictions and whether those outcomes reflect genuine substance.

The global minimum tax doesn’t replace transfer pricing. It raises the stakes and sharpens its strategic significance.

Looking Ahead

The OECD global minimum tax was never designed to be flawless, but its durability now depends less on strict adherence to the original blueprint and more on how governments adapt it to their domestic circumstances.

The US exemption has already shifted the framework from a uniform global model toward a more flexible, interoperability‑based system, an evolution the OECD itself effectively acknowledged in the January 2026 side‑by‑side package, which introduced new safe harbors and paved the way for coexisting minimum tax regimes.

In the coming years, governments will face pressure to refine qualified domestic minimum top-up taxes, extend safe harbors, preserve strategic incentives, or even introduce domestic minimum taxes as they try to balance competitiveness with compliance. Political divergence, particularly in the US and other major economies, will continue to test the cohesion of the global project, forcing policymakers to weigh industrial policy goals against the need for predictable international tax rules.

For multinational businesses, the next phase will be shaped far more by strategic repositioning than by mechanical compliance. Companies will need to reconsider group structures, supply‑chain footprints, and IP ownership models as the 15% floor reshapes the relative attractiveness of traditional investment hubs. At the same time, transfer pricing will become even more central.

Transfer pricing outcomes will increasingly determine GloBE effective tax rates, transfer pricing documentation will anchor Pillar Two defense strategies, and transfer pricing professionals will evolve into architects of resilient, substance‑driven operating models. The firms that invest early in an integrated tax‑and‑transfer-pricing strategy and build credible economic substance will be best positioned to navigate whatever form the global minimum tax ultimately takes.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Jelena Mihic is managing director at Kreston MDM in Serbia.

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