Patchwork or Platform? The Future of Pillar Two

KPMG International convened a virtual roundtable in March 2026 as part of the Global Responsible Tax Program to explore the evolving trajectory of Pillar Two and its implications for global tax cooperation.

The original 2021 agreement among more than 140 jurisdictions was built around a largely uniform set of interlocking rules designed to secure a 15% global minimum effective tax rate (GMT) for large multinational groups. Following many months of intense negotiations, on January 5, 2026, the agreed new framework was announced. Under the agreed “side-by-side approach”, from January 2026, US multinational enterprises will only be subject to some of the interlocking GMT rules.

While the January agreement has generally been welcomed as bringing much needed stability and certainty, the more patchwork rather than universal application across the world will have implications as implementation continues. Governments will need to assess how the updated rules interact with their domestic minimum top-up taxes, incentive regimes and broader competitiveness strategies. Businesses, in turn, are considering the implications for structuring, reporting and investment decisions in what may become a more differentiated global landscape.

These developments will play out against a backdrop of other significant changing global tax dynamics. These include the greater interplay of trade and tax, the potential re-emergence of global work on tax and the digitalization of the economy, as well as the impact of AI on tax administration and on tax systems more generally. This is alongside moves in relation to tax transparency (e.g., the first public CbCR disclosures in the EU and Australia), environmental taxation (e.g., EU CBAM entered its definitive phase on 1 January 2026), global mobility taxation (subject of a new major OECD initiative), as well as broader change in relation to the global tax institutional set-up (e.g., continued negotiations on the UN Tax Framework).

Held under the Chatham House Rule, the discussion brought together policymakers, business representatives and civil society voices. The write-up below summarizes the personal views expressed and does not necessarily represent the position of any organization, including KPMG International Limited or any KPMG member firm.

The shift to a “side-by-side” approach reflects both resilience and fragmentation in global tax cooperation.

Participants broadly characterized the move from a uniform global framework to a more differentiated implementation model as a pragmatic response to political realities. While the original ambition of a fully coordinated system was widely viewed as preferable, there was recognition that such an outcome may not have been achievable given constraints in key jurisdictions.

The “side-by-side” approach was therefore seen as preserving momentum and maintaining a shared direction of travel. At the same time, this evolution introduces structural tensions. The coexistence of multiple systems raises risks of inconsistency, arbitrage and increased administrative complexity. Some participants noted that additional jurisdictions may seek differentiated treatment over time, potentially reinforcing fragmentation.

Overall, the framework (emerging from the January 2026 “side-by-side” package) was viewed less as an endpoint and more as a transitional arrangement — one that keeps the “car on the road” but does not resolve underlying questions about the future architecture of international tax cooperation.

Implementation challenges and compliance burdens risk undermining the perceived effectiveness of the system.

A dominant theme throughout the discussion was the scale and persistence of complexity. Participants emphasized the substantial operational effort required to comply with Pillar Two rules, including data collection, system changes and resource allocation across multiple jurisdictions.

In some cases, the compliance burden was described as disproportionate to the expected tax outcome, particularly where additional tax liabilities are minimal. This led to one participant referencing a “bittersweet” sentiment: while the policy objective may be understood, the practical implications remain challenging.

From a technical perspective, complexity was linked to the design choice of building the rules on financial accounting principles, which are not inherently aligned with tax system logic. While this approach may facilitate automation and integration over time, the transition phase is resource-intensive.

Pillar Two may shift competitive dynamics toward real investment and alternative policy tools.

Participants highlighted that while Pillar Two aims to reduce profit shifting, it does not eliminate tax competition. Instead, it appears to be reshaping it. In particular, the reduced effectiveness of traditional income-based tax incentives (especially in jurisdictions without domestic minimum taxes) may lead countries to explore alternative mechanisms, such as expenditure-based incentives or direct subsidies. This shift could intensify competition for real economic activity rather than purely for reported profits.

For multinational businesses, this creates a more complex and differentiated landscape, with varying implications depending on jurisdiction and sector. Some participants noted emerging asymmetries between countries that are able to deploy alternative incentives and those that are not, potentially affecting investment patterns.

More broadly, the discussion pointed to unresolved questions about what constitutes “fair” competition in a globalized economy. Without a shared understanding across tax, trade, and industrial policy domains, Pillar Two alone may be insufficient to establish a stable equilibrium.

Questions of equity, capacity and participation remain central to the legitimacy of the framework.

The implications of Pillar Two for developing and lower-income countries were a recurring concern. Participants noted that these jurisdictions often rely more heavily on corporate tax revenues and may lack the administrative capacity to implement complex new rules.

In the absence of domestic minimum taxes, there is a risk that revenue associated with their economic activity may be collected elsewhere under the income inclusion rule. This raises questions about fairness and the distribution of taxing rights.

At the same time, traditional tax incentives (often used to attract investment) may become less effective, further constraining policy options. Some participants suggested that this could prompt a reassessment of development strategies, including a shift toward investment in infrastructure and institutional capacity.

There were also calls for greater transparency and inclusivity in the governance process, particularly in anticipation of future reviews. Strengthening participation and capacity-building support was seen as critical to ensuring that all countries can engage meaningfully in shaping the system.

Beyond technical design, participants questioned the long-term objectives of international tax cooperation.

A notable feature of the discussion was the emergence of a more fundamental question: what is the overarching purpose of international tax policy in the coming decades?

While there was broad agreement on the need to balance revenue generation, fairness and economic growth, there was less clarity on how these objectives should be prioritized or operationalized. Some participants suggested that the current focus on regulating avoidance may not provide a sufficient foundation for a longer-term framework.

This uncertainty is compounded by wider structural changes, including demographic shifts, technological disruption (particularly related to AI), and evolving geopolitical dynamics. These factors may have profound implications for tax bases, distributional outcomes, and the role of taxation in economic policy.

In this context, Pillar Two was seen by some as part of a broader transition. One that may eventually lead to more fundamental reforms, whether through incremental adjustments or more systemic changes.

Future progress may depend on balancing global ambition with practical coordination mechanisms.

Looking ahead, participants expressed differing views on the most effective pathway for continued cooperation. Some emphasized the importance of strengthening multilateral frameworks, including ongoing discussions in global forums such as the United Nations.

Others suggested that more regionally coordinated approaches (such as alignment within the European Union or among smaller groups of jurisdictions) might offer a more practical route to simplification and consistency, at least in the near term.

Across these perspectives, there was a shared emphasis on the need for coordination, clarity and incremental progress. Whether through global or regional mechanisms, the priority is to avoid further fragmentation while maintaining flexibility to adapt to changing conditions.

Pillar Two represents a significant milestone in international tax cooperation, but it is not a settled endpoint. The transition to a more differentiated implementation model reflects both the resilience and the limits of multilateralism in a complex geopolitical environment.

The immediate challenge lies in managing complexity, ensuring consistent application, and addressing uneven impacts across jurisdictions. Beyond this, a deeper strategic question remains: how should international tax systems evolve to meet the economic, social and technological challenges of the coming decades?

This conversation highlights both the progress made and the uncertainties ahead.

Contributors

• Mariana Alter, Global Director Tax Policy, AB InBev
• Benoit Desirotte, Head of Tax for Europe, Chanel
• Thabo Legwaila, Professor of Tax Law, South Africa
• Didier Jacobs, Development Finance Lead, Oxfam International
• Janni Lundhede Poulsen, Head of Global Tax Controversy & Policy, Maersk
• Ruud de Mooij, Deputy Director of the Fiscal Affairs Department, IMF
• John Peterson, Head of Division - Cross Border and International Taxation (CBI), OECD
• Tam Do, Global Tax Policy Director, KPMG International
• Chris Morgan, Global Leader for the KPMG Responsible Tax Program, KPMG International
• Conrad Turley, Head of Global Tax Policy, KPMG International
• Raluca Enache, Head of KPMG’s EU Tax Centre, KPMG in Romania
• Becky Holloway, Partner, Jericho
• Neal Lawson, Partner, Jericho