[Opinion] Global Minimum Tax and the New Architecture of International Taxation

CA Parag Garg – [2026] 187 taxmann.com 654 (Article)

1. Introduction

International taxation is undergoing one of the most significant transformations in modern fiscal history. The OECD/G20 Inclusive Framework’s Pillar Two initiative — commonly referred to as the Global Minimum Tax (“GMT”) or Pillar Two regime — seeks to fundamentally reshape the manner in which Multinational Enterprises (“MNEs”) are taxed across jurisdictions.

For decades, tax competition among jurisdictions, digital business mobility, aggressive tax planning structures, and the proliferation of low-tax jurisdictions enabled MNE groups to significantly reduce their global effective tax rates. The OECD’s Base Erosion and Profit Shifting (“BEPS”) Project attempted to address several of these concerns through targeted anti-avoidance measures1. However, the continued ability of large MNEs to allocate substantial profits to jurisdictions with limited economic substance necessitated a broader coordinated global response.

Pillar Two represents that response. At its core, Pillar Two introduces a coordinated GMT framework designed to ensure that large MNE groups are subject to a minimum Effective Tax Rate (“ETR”) of 15% on a jurisdictional basis, irrespective of where they operate.

The framework, developed under the OECD/G20 Inclusive Framework comprising more than 140 jurisdictions, is intended to reduce incentives for profit shifting, discourage harmful tax competition, and establish a more consistent global taxation environment.

2. Evolution of International Taxation and the Rise of BEPS 2.0

Historically, international taxation was largely based on the concepts of residence-based taxation and source-based taxation. Over time, globalization and digitalization significantly altered the manner in which businesses generated value. Intangible assets, digital business models, remote service capabilities, and integrated global supply chains enabled profits to become increasingly mobile.

Simultaneously, jurisdictions competed aggressively through preferential tax regimes, low corporate tax rates, patent boxes, and tax incentives designed to attract mobile capital. This environment contributed to substantial instances of base erosion and profit shifting.
Common BEPS structures historically included:

Intellectual property migration to low-tax jurisdictions;
Excessive interest deductions;
Hybrid mismatch arrangements;
Treaty shopping structures; and
Artificial allocation of profits to low-taxed and low-substance entities.

The OECD’s original BEPS initiative culminated in fifteen action plans2 aimed at improving transparency, strengthening transfer pricing principles, and limiting treaty abuse. However, concerns persisted regarding low-taxed income that continued escaping meaningful taxation.
This ultimately resulted in the development of BEPS 2.0, consisting primarily of: