BEPS Pillar Two and 15% Multinational Top-up Tax — Costs and fees breakdown
Published on: 2 Jul, 2026

BEPS Pillar Two and 15% Multinational Top-up Tax — Costs and fees breakdown

BEPS Pillar Two and the 15% Multinational Top-up Tax mean large multinational groups now face a global minimum effective tax rate of 15% in each jurisdiction. Singapore collects any shortfall through a domestic top-up tax. This guide explains scope, mechanics, costs and compliance for in-scope groups.

Raffles Corporate Services works with a panel of corporate and employment law firms; this article is general information, not legal advice.

What BEPS Pillar Two and the 15% top-up tax are

BEPS Pillar Two is the OECD-led reform that sets a global minimum effective tax rate of 15% for large multinational enterprise (MNE) groups. Where a group’s effective tax rate in a jurisdiction falls below 15%, a top-up tax is charged to bring it up to the floor. The regime is built around three linked rules: the Income Inclusion Rule (IIR), the Undertaxed Profits Rule (UTPR) and, for host countries, a Qualified Domestic Minimum Top-up Tax (QDMTT).

Singapore has implemented the framework through domestic legislation introducing an Income Inclusion Rule and a Domestic Top-up Tax for in-scope groups, applying to financial years beginning on or after 1 January 2025. The design ensures that any 15% shortfall on Singapore profits is collected in Singapore rather than surrendered to a foreign parent jurisdiction.

Who is in scope

The regime applies to MNE groups with consolidated annual group revenue of at least EUR 750 million in at least two of the four preceding financial years. This threshold mirrors the country-by-country reporting standard, so groups already filing CbC reports are the natural population. Purely domestic Singapore groups and smaller multinationals fall outside Pillar Two.

Scoping is done at group level, but the tax is computed jurisdiction by jurisdiction. A group can be in scope globally yet have some jurisdictions above 15% and others below. Our comparison of Section 13O vs 13U family office schemes is a reminder that incentive-driven low effective rates are exactly the situations where top-up tax can bite for large groups.

How the 15% effective rate is calculated

The effective tax rate for a jurisdiction is broadly covered taxes divided by GloBE income, computed under detailed OECD model rules with numerous adjustments to accounting profit. If the resulting rate is below 15%, the difference is the top-up percentage, applied to excess profit after a substance-based income exclusion that carves out a return on tangible assets and payroll.

Because Singapore’s headline corporate rate is 17%, many groups will already be at or above 15%. The exposure arises where tax incentives, allowances or timing differences push the jurisdictional effective rate below the floor. Modelling the GloBE effective rate, which differs from the accounting or statutory rate, is the single most important analytical step.

Costs, compliance and timelines

The direct cost is any top-up tax payable, but the larger operational cost for most groups is compliance. Expect to invest in data collection across every jurisdiction, GloBE effective-rate modelling and new returns. Advisory and systems costs for a mid-sized in-scope group commonly run from S$50,000 to several hundred thousand Singapore dollars in the first year, tapering as processes mature.

On timelines, groups must prepare GloBE Information Returns and domestic top-up tax filings in line with the transitional and standard deadlines set out in the legislation and IRAS guidance. The transitional CbCR safe harbour can reduce the compliance burden for jurisdictions that meet simplified tests in the early years, so mapping which jurisdictions qualify is an early priority.

Step-by-step response for finance teams

Step one, confirm scope using consolidated revenue across the test years. Step two, inventory every jurisdiction and gather the data points the GloBE rules require, which go well beyond the tax return. Step three, run the jurisdictional effective-rate calculation and identify shortfall jurisdictions. Step four, test the transitional safe harbours to reduce filing load. Step five, quantify the top-up liability, book any provision and set up the returns calendar.

Groups relocating senior finance or tax talent to manage Pillar Two should plan immigration in parallel; our guide to the Personalised Employment Pass covers the salary thresholds for senior hires. Keep entity housekeeping current with ACRA, and fund-management groups should monitor the MAS for interactions with incentive conditions.

Common mistakes and gotchas

The most common error is equating the statutory 17% rate with the GloBE effective rate; incentives and adjustments can pull the GloBE rate below 15% even when the accounts look fully taxed. A second is underestimating the data problem, since GloBE requires granular figures that legacy systems may not capture. A third is missing the safe-harbour opportunity in the transitional years.

Finally, incentive planning must now be tested against Pillar Two. A concession that reduces cash tax below 15% may simply move the revenue into a top-up charge, so the net benefit for a large group can be far smaller than the headline incentive suggests.

Worked example: from statutory rate to GloBE effective rate

Imagine a Singapore entity in a large multinational group with accounting profit of S$100 million. On paper it pays tax at 17%, but a package of incentives and enhanced allowances reduces its cash tax to S$12 million, an effective rate of 12%. Under Pillar Two, the GloBE effective rate for Singapore is below the 15% floor, so a top-up of roughly three percentage points applies to the excess profit after the substance-based carve-out, collected as domestic top-up tax.

If the substance-based income exclusion shelters, say, S$20 million of profit through payroll and tangible-asset carve-outs, the top-up applies to the remaining S$80 million, producing a top-up charge in the order of S$2.4 million. The lesson is stark: an incentive that saved S$5 million of headline tax may hand back roughly half through top-up tax, so the net benefit is far smaller than it first appears.

Data and systems: the real compliance challenge

Pillar Two demands data that traditional tax returns never captured, including detailed deferred-tax movements, entity-by-entity payroll and tangible-asset figures for the carve-out, and mapping of covered taxes to GloBE income. Many groups discover their consolidation systems cannot produce these figures without significant reconfiguration, so early scoping of data gaps is essential.

Groups should assign clear ownership between tax, finance and IT, and consider whether a dedicated Pillar Two calculation engine is warranted. The transitional CbCR safe harbours can reduce the burden for qualifying jurisdictions in the early years, but they require the group’s country-by-country data to be reliable, which is itself a data-quality project.

Planning responses for in-scope groups

Once modelled, groups have several levers. They can review whether incentives that push the effective rate below 15% still make sense, since the benefit may be recaptured. They can ensure they claim the full substance-based carve-out by aligning payroll and asset data. And they can restructure where genuinely commercial to do so, always mindful that arrangements lacking substance attract scrutiny.

None of this changes the position for domestic SMEs and smaller multinationals, who remain outside the regime. For them, the practical action is simply to confirm they are below the EUR 750 million threshold and document that conclusion, so they are not drawn into unnecessary compliance work.

FAQs

Does Pillar Two apply to Singapore SMEs?
No. It applies only to multinational groups with consolidated annual revenue of at least EUR 750 million in at least two of the four preceding years. Domestic SMEs and smaller multinationals are outside the regime.

Why does Singapore charge a domestic top-up tax?
To collect any 15% shortfall on Singapore profits domestically rather than allowing another jurisdiction to tax it under the Income Inclusion Rule or Undertaxed Profits Rule.

Will incentives still be worthwhile?
Often yes, but the benefit must be tested against Pillar Two. For in-scope groups an incentive that reduces the effective rate below 15% may trigger an equal top-up charge, reducing the net advantage.

When did the rules take effect in Singapore?
The Income Inclusion Rule and Domestic Top-up Tax apply to financial years beginning on or after 1 January 2025, with transitional safe harbours available in the early years.

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Need help with this? Call, SMS or WhatsApp +65 8501 7133, or email [email protected]. Raffles Corporate Services works with a panel of corporate and employment law firms; this article is general information, not legal advice.