Russian Pillar Two to take effect on January 1, 2026

On May 29, 2025, the Russian Ministry of Finance published a draft federal law that introduces a new procedure for calculating income tax for Russian members of large multinational enterprise groups (MNEs)—that is, a national equivalent of the Global Anti-Base Erosion Model Rules (Pillar Two).[1] If adopted, the new rules will take effect as early as January 1, 2026.

Below you will find a brief overview of this draft federal law.

 1. What is Pillar Two?

The Pillar Two Model Rules (Pillar Two), released by the OECD on December 20, 2021, are a key element of a global tax reform aimed at addressing the tax challenges arising from the digitalization of the economy. These rules are part of a two-pillar solution that was agreed by 137 member jurisdictions of the OECD/G20 Inclusive Framework on BEPS.

Each of the two pillars is a set of rules aimed at addressing a particular problem. While Pillar One focuses on redistributing taxation rights between countries, Pillar Two aims to establish a minimum level of tax burden on large multinational enterprise groups (MNEs).

Pillar Two comprises:

(1) The Global anti-Base Erosion Rules (GloBE Rules[2]), which provide an agreed minimum level of tax burden on large MNEs at 15% in the jurisdictions of their presence, thereby limiting the incentive to shift profits to low-tax jurisdictions. The key elements of the GloBE Rules are three rules that ensure such a minimum taxation of MNEs:

a. Income Inclusion Rule (IIR);
b. Undertaxed Profits Rule (UTPR); and
c. Qualified Domestic Minimum Top-Up Tax (QDMTT).

(2) The Subject To Tax Rule (STTR) [3], which protects the rights of source countries to tax certain intra-group income with a low level of taxation in the country of the payee. The STTR allows source countries to “tax back” where defined categories of intragroup covered income are subject to nominal corporate income tax rates below the STTR minimum rate. The implementation of this rules requires changes to international tax treaties. To do so, in September 2024, the Multilateral Convention to Facilitate the Implementation of the Pillar Two Subject to Tax Rule (“STTR MLI”) [4] was signed, which is aimed at revising existing tax treaties.

2. GloBE Rules in detail

The GloBE rules are a key element of Pillar Two, enabling countries to apply a top-up tax if the relevant income was taxed at an effective rate below the globally agreed minimum in another jurisdiction in which the MNE operates. To put it simply, the rule states that if a multinational enterprise saves on taxes by using low-tax jurisdictions, it will still have to pay the “saved up” tax—if not in the same, but in a different country.

The purpose of the GloBE Rules is to ensure that the effective tax rate for large MNEs does not fall below the globally agreed minimum level. The GloBE Rules are designed as model regulations that states can incorporate into their national laws.

The GloBE Rules apply only to large MNEs with annual revenues of €750 million or more in at least two of the four fiscal years immediately preceding the audited fiscal year.

Thus, the GloBE Rules are based on three basic rules:

a. Income Inclusion Rule (IIR)

In short, the IIR is that if the effective tax rate of an MNE subsidiary in a low-tax jurisdiction is below 15%, the difference (top-up tax) applies in the country of the parent company.

b. Undertaxed Profits Rule (UTPR)

The UTPR is a kind of insurance rule that applies only if top-up tax under the IIR rules has not been collected. The UTPR allocates top-up tax between the jurisdictions of subsidiaries that have established the UTPR, based on the ratio of personnel to tangible assets.

This rule assumes that members of an MNE in jurisdictions that apply the UTPR may be disallowed deductions for expenses that would otherwise be deductible in amount that would be sufficient to create for them an additional tax liability equal to the amount of the UTPR tax allocated to the relevant jurisdiction. Furthermore, the expenses for which the deduction is disallowed do not have to relate to the MNE’s intragroup transactions. A deduction for ordinary expenses may also be disallowed.

The UTPR may also be an adjustment equivalent to a denial of a tax deduction. At the same time, however, the UTPR rule does not provide a specific mechanism for making such an adjustment. Jurisdictions applying the UTPR can choose the appropriate mechanism independently.

c. Qualified Domestic Minimum Top-up Tax (QDMTT)

For countries with a low effective tax rate, the IIR and UTPR rules mean: If they do not apply a tax of at least 15%, the “surcharge” will be applied to the parent company or other companies of the group, and the tax proceeds will go abroad.

In this regard, the source country may introduce its own domestic top-up tax that complies with the GloBE Rules. This ensures that the multinational enterprise (MNE) pays the top-up tax in the country from which it derives income rather than in the country where the parent company is based. In this case, the source country is the first to have the right to collect the top-up tax, before the IIR/UTPR applies. Such a “domestic” top-up is taken into account when applying the IIR/UTPR. This will prevent tax revenues from flowing abroad while ensuring a minimum tax burden on large MNEs.

3. Changes in the Russian tax system. Special rules for large MNEs.

The draft federal law amends the Russian Tax Code, setting out a procedure for Russian members of large MNEs to pay income tax in an amount necessary to achieve a minimum level of taxation of at least 15%.

Who will these changes affect?

These changes are aimed at Russian members of MNEs[5], in respect of which all the following conditions are met:

• The parent company of the MNE is a foreign company.
• The MNE’s revenue for each of the two fiscal years immediately preceding the current tax period exceeds €750 million.
• The parent company or intermediate holding companies of this MNE are tax residents of states whose laws provide for minimum effective taxation rules under the OECD Model Tax Rules, or this MNE includes at least one member that is a tax resident of states whose laws provide for extraterritorial taxation rules under the OECD Model Tax Rules, which establishes a global minimum effective taxation level for MNEs. Lists of such states must be approved by the Russian Ministry of Finance.

What are the rules in a nutshell?

According to the rules in question, if the ratio of the tax of a Russian member of an MNE to its profits calculated according to the Income Tax Chapter of the Russian Tax Code is less than 0.15, the tax for that member will be calculated at 15% of the amount of profits and losses calculated according to the Income Tax Chapter of the Russian Tax Code for the tax period. These calculations do not take into account the tax base from equity interests in other entities.

This means that if the effective income tax rate for a Russian member of an MNE is less than 15%, the member must pay tax so that the effective rate for that member should equal 15%. Unlike the OECD Rules, the Russian rules require calculating and adjusting the tax burden at the level of each Russian member of an MNE, rather than at the level of the jurisdiction as a whole.

It is important that these changes will also affect participants in special investment contracts, residents of advanced development territories, taxpayers that are residents of the free port of Vladivostok, taxpayers that are residents of special economic zones, taxpayers who are parties to an agreement on protection and promotion of capital investments, international holding companies, participants in the free economic zone on the territories of the Donetsk People’s Republic, the Lugansk People’s Republic, Zaporizhzhia oblast, Kherson oblast, and certain territories of constituent entities of the Russian Federation as determined by the Russian Government.

4. What steps to take now?

We recommend:

• Running diagnostics on your MNE group to determine if it falls under the changes in question.
• Calculating the effective tax rate for the Russian members of your MNE group.
• Assessing whether it would be possible to take the Russian top-up tax into account when applying the GloBE Rules to your MNE group.
• Assessing whether there is a need to waive benefits in Russia, revise your transfer pricing policy, or finance Russian members of your MNE group, taking into account the conclusions you drew in response to the previous paragraph.

We would be pleased to assist you with the above steps and answer any questions that you may have.

Please contact me directly.

Sincerely,

Anton Kabakov, Partner

 

[1] https://regulation.gov.ru/Regulation/Npa/PublicView?npaID=157161#

[2] OECD (2021), Tax Challenges Arising from the Digitalisation of the Economy – Global Anti-Base Erosion Model Rules (Pillar Two): Inclusive Framework on BEPS, OECD Publishing, Paris, https://doi.org/10.1787/782bac33-en

[3] OECD (2023), Tax Challenges Arising from the Digitalisation of the Economy – Subject to Tax Rule (Pillar Two): Inclusive Framework on BEPS, OECD/G20 Base Erosion and Profit Shifting Project, OECD Publishing, Paris, https://doi.org/10.1787/9afd6856-en

[4] https://www.oecd.org/en/topics/sub-issues/subject-to-tax-rule/multilateral-convention-to-facilitate-the-implementation-of-the-pillar-two-subject-to-tax-rule.html

[5] The term “MNE” has the meaning defined in Article 10516-1(2).