How does the OECD Pillar Two global minimum tax affect foreign-owned U.S. LLCs?

The OECD/G20 Inclusive Framework's Pillar Two (also called the Global Anti-Base Erosion or GloBE rules) establishes a global minimum effective tax rate of 15% for large multinational enterprise (MNE) groups with consolidated revenue of EUR 750 million or more. The rules are implemented through domestic legislation in participating countries. The key mechanisms are: (1) the Income Inclusion Rule (IIR), which allows the parent jurisdiction to impose a top-up tax on low-taxed foreign income; (2) the Undertaxed Profits Rule (UTPR), which acts as a backstop if the parent jurisdiction does not apply the IIR; and (3) the Qualified Domestic Minimum Top-up Tax (QDMTT), which allows source countries to impose the top-up tax domestically before the IIR or UTPR applies.

The U.S. has not enacted Pillar Two implementing legislation. However, the U.S. does have GILTI, which serves a similar purpose — imposing a minimum tax on foreign earnings of U.S. multinationals. Whether GILTI qualifies as a "qualified IIR" under Pillar Two is a key question. Currently, GILTI is computed on a blended (worldwide) basis, while Pillar Two requires a jurisdiction-by-jurisdiction calculation. This mismatch means GILTI may not fully satisfy the Pillar Two requirements, potentially leaving U.S.-parented groups subject to top-up taxes imposed by other countries through the UTPR.

If your foreign parent is in a country that has adopted Pillar Two and the parent group meets the EUR 750 million revenue threshold, the GloBE rules apply to the entire group, including U.S. subsidiaries. The parent's jurisdiction will apply the IIR to determine if any constituent entity in the group (including your U.S. LLC) is taxed at below 15% on a jurisdictional basis. If your U.S. LLC's effective tax rate (computed under GloBE rules, which differ from U.S. GAAP and U.S. tax rules) is below 15%, the parent jurisdiction may impose a top-up tax on the parent company to bring the rate up to 15%.

For most U.S. entities, the U.S. federal corporate tax rate of 21% exceeds 15%, so the GloBE ETR for U.S. operations will typically be above 15%. However, GloBE uses its own income definition (based on financial accounting with adjustments), not U.S. taxable income. Certain U.S. tax benefits — such as accelerated depreciation, R&D credits, and other incentives — could reduce the GloBE ETR below 15% in specific years, potentially triggering a top-up tax. Additionally, if the U.S. enacts a QDMTT, it could impose any top-up tax domestically before the parent's country applies the IIR.

If your foreign parent is subject to Pillar Two, your group should: (1) determine which entities are "constituent entities" in the GloBE group; (2) compute GloBE income and the effective tax rate for U.S. jurisdictional operations; (3) assess whether any U.S.-specific tax benefits push the GloBE ETR below 15%; (4) monitor whether the U.S. enacts QDMTT or other Pillar Two-responsive legislation; and (5) evaluate restructuring opportunities to minimize global top-up tax exposure. This requires coordination between U.S. tax advisors and advisors in the parent's jurisdiction, as Pillar Two compliance is driven by the parent company's obligations.

Pillar Two is still evolving. Many countries enacted IIR rules effective for 2024 or 2025, with UTPR rules following shortly after. The U.S. has not enacted implementing legislation, and Congress may respond by modifying GILTI or enacting a domestic minimum tax. The OECD continues to issue administrative guidance. For foreign-owned U.S. entities, the key message is: Pillar Two compliance is primarily the parent company's responsibility, but the U.S. subsidiary's data is needed for the computation. Keeping U.S. financial and tax data accessible and reconcilable to GloBE standards is increasingly important.