Written by Jayasri P · Last updated 17 August 2026.
Pillar Two catches large multinational groups, measured on consolidated group revenue rather than on the size of any single company. A group is in scope where consolidated revenues reach EUR 750 million in at least two of the four preceding years. Scope is decided at group level, so a small Indian subsidiary of a very large group is affected.
Most finance heads test Pillar Two against the wrong number, looking at the Indian company’s turnover, its headcount and its profit, and concluding that a business of that size cannot plausibly be caught by an international minimum tax framework built for the largest enterprises in the world, and that conclusion is wrong for a structural reason rather than a marginal one.
Pillar Two does not measure you. It measures the group you belong to.
Does Pillar Two apply to my company?
The application of the scope test depends on whether the group to which the company belongs is itself in scope. Size, profitability and standalone turnover of the Indian entity do not contribute towards that test.
The global minimum tax, as per the standards provided by the Organisation for Economic Co-operation and Development, is applicable to multinational enterprise groups with consolidated revenues of EUR 750 million in at least two of the last four years. The Pillar Two model rules also confirm the negative side of this test, the part most often missed: taxpayers with no foreign presence, and taxpayers whose consolidated revenues fall below the threshold, sit outside the framework entirely, however large the Indian operation may be.
Accordingly, the answer is based on two facts that are neither part of your Indian balance sheet. Find the consolidated revenue of the ultimate parent’s group for each of the four previous years and check whether the group operates in more than one jurisdiction.
Why is scope tested at group level rather than entity level?
Because the rules exist to stop profit being shifted between entities, and a test applied entity by entity would be defeated by the very behaviour it targets. Consolidated revenue is the one figure that cannot be rearranged through intragroup structuring.
The outcome described is counterintuitive, and it is one of the most misunderstood concepts in the framework. It is possible for two same-sized Indian companies to be located on opposite sides of the divide, and the difference that sets them apart has nothing to do with the two companies.
What happens to a small Indian subsidiary of a very large group?
It is inside the rules. When the ultimate parent crosses the consolidated threshold, an Indian subsidiary that has low revenue and no foreign operations of its own becomes a constituent entity of an in-scope group.
This is where most of the surprise sits. A finance head running an Indian entity turning over a few hundred crore reasonably assumes that a minimum tax aimed at the world’s largest groups is somebody else’s problem, and then discovers that the group data request arriving from headquarters is neither optional nor informational.
However, the Indian team must shoulder the actual burden because it is essential to perform calculations on a group level, which means collecting from India the jurisdiction-level financial information that includes tax charge data and payroll and tangible asset figures, prepared on a basis that reconciles to the consolidated accounts rather than to the Indian tax return.
Why is a large standalone Indian company outside the rules?
Because there is no group above it and no presence outside of India. Therefore, purely domestic Indian companies, no matter how big, fail the multinational limb of the test and revenue alone is not sufficient for them to be included in the scope.
That relief should be documented rather than assumed, because groups restructure and a domestic company that acquires or is acquired can cross the line in a single year.
Which groups are in scope, and what must each do next?
The table below illustrates the most common fact patterns. Be advised that while reading the table you should read it according to group position and not to the entity position as the third column refers to the next step but not to the actual liability.
| Group type | Whether it is in scope | What it must do next |
|---|---|---|
| Indian subsidiary of a foreign group whose consolidated revenues reach EUR 750 million in at least two of the last four years | In scope, as a constituent entity | Confirm the group determination in writing with headquarters, then scope the India data the group computation will require each year |
| Indian headquartered group with overseas subsidiaries, consolidated revenues at or above the threshold | In scope, with India as the parent jurisdiction | Establish which jurisdictions in the group are low-taxed, and confirm where a top-up would be collected |
| Large standalone Indian company with no foreign presence | Not in scope | Record the basis and the date of the conclusion, and revisit it on any acquisition or overseas incorporation |
| Indian group with foreign subsidiaries but consolidated revenues below the threshold | Not in scope on current figures | Monitor consolidated revenue against the four-year test, particularly where growth or acquisition is planned |
| Group that crossed the threshold in only one of the last four years | Not in scope on that fact alone | Track the rolling four-year position, because a second qualifying year brings the group in |
| Indian entity of an in-scope group where the India effective rate already exceeds the minimum | In scope, though India is unlikely to generate the top-up | Continue to supply India data, because the jurisdictional rate must be computed before it can be relied upon |
Is Pillar Two a new tax on the Indian entity’s profit?
No, and the distinction is relevant. Pillar Two is a top-up mechanism operating on the effective tax rate of a jurisdiction rather than an additional charge on the taxable profit of the Indian company.
The process runs in a predefined sequence. The group determines the effective tax rate applicable to each jurisdiction in which it operates, using the income drawn from financial accounts and the taxes allocated to that income. In those cases where the rate falls below the agreed minimum rate of 15%, the difference will be treated as a top-up percentage applied to that particular jurisdiction’s income, after deducting a carve-out calculated on tangible assets and payroll.
Two features of that sequence matter for transfer pricing. The rate is jurisdictional, not entity-specific. And the base is accounting income, not taxable income as computed under domestic law.
Where is the top-up tax actually collected?
The response does not always align with the expectation of a head of finance. This is because it depends on which rules each jurisdiction has adopted. In any jurisdiction that adopts a domestic minimum top-up tax consistent with the model rules, that jurisdiction collects the tax on its own low-taxed profits first, and that charge is credited against any wider liability.
Where no such domestic charge exists, the primary rule brings the top-up in at the level of the parent, in proportion to its ownership of the low-taxed entities, and a backstop rule allocates any remaining amount across the other jurisdictions in which the group operates.
Do not assume the position for any jurisdiction, including that of India. It is necessary to confirm which of these rules is in force for the year concerned, as it determines who pays and when.
Why does transfer pricing matter more under Pillar Two, not less?
Because Pillar Two makes the location of profit determinative in a way that ordinary tax computation does not. Once a top-up is calculated jurisdiction by jurisdiction, where profit is booked drives the tax due at group level, and transfer pricing is the mechanism deciding where profit is booked.
A widespread assumption runs in the opposite direction. If every jurisdiction ends up at a minimum rate, the reasoning goes, then moving profit between them stops mattering, but that reasoning fails because the minimum applies to jurisdictions rather than to the group, and because carve-outs, timing differences and jurisdictions taxing well above the minimum mean outcomes still differ materially depending on where income lands.
Can a transfer pricing adjustment in India change a jurisdiction’s effective rate?
Yes, and this is the connection most groups have not yet built into their processes. An adjustment made in India alters both the income and the tax charge attributed to India, which moves the Indian effective rate, and where the counterparty jurisdiction grants no corresponding adjustment the group is left with profit taxed twice and a distorted rate in two places at once.
The arm’s length price is itself determined under Section 165 of the Income-tax Act 2025, which carries forward Section 92C of the Income-tax Act 1961, and the transaction reaches that test at all because it qualifies as an international transaction within Section 163 of the Income-tax Act 2025, the successor to Section 92B of the 1961 Act. Every 1961 provision referred to in this article continues to govern earlier tax years.
In cases where the Assessing Officer finds it appropriate, the case may be sent to the Transfer Pricing Officer in accordance with the provisions of Section 166 of the Income-tax Act 2025, the successor of Section 92CA under the 1961 Act. It has been observed that an adjustment made at that stage is no longer confined to the Indian return. It feeds the group computation years later, and that timing is precisely the problem finance teams are unprepared for. The mechanics of that examination are set out in this note on the transfer pricing assessment procedure.
Should a group still defend a low-tax outcome the same way?
Not without rethinking what is actually being defended here. A structure that produces a low effective rate in one jurisdiction may now be handing that rate difference over to another government in the form of a top-up, converting a tax saving into a compliance cost.
The relevant question is no longer whether the arrangement survives a local audit, but whether the profit allocation it produces still makes sense once the top-up is priced in.
Can an Indian headquartered group be caught as the parent?
Yes, and more often than expected. Indian groups with overseas subsidiaries are commonly assumed to be observers of Pillar Two rather than participants, and that assumption fails wherever consolidated revenues meet the threshold.
An Indian ultimate parent in that position carries the parent-side obligations: it must identify which jurisdictions in its group are low-taxed, compute the effective rate for each of them, and determine where any resulting top-up is collected under the rule order applying for the year.
Those groups that have only a few overseas entities are the most vulnerable, as the overseas footprint appears to be incidental while being decisive for the test. The cross-border position of non-resident group companies is explained in transfer pricing compliances for non-residents in India.
What should a finance head do now?
Initially, establish the group scope in writing and do not begin computation work without closing that question first. The immediate position is covered in three steps.
Confirm whether the group is in scope, using consolidated revenue for each of the four preceding years rather than the current year alone, and obtain it from the ultimate parent as a stated determination rather than an inference from published accounts.
Establish which jurisdictions in the group have low taxation levels. This task is a group activity because it requires data from India; the Indian figures do not reconcile to the Indian tax computation without additional effort, because the framework starts from financial accounts.
After this, the transfer pricing positions across those jurisdictions should be aligned. The contemporaneous documentation as per Section 171 of the Income-tax Act 2025, which carries forward Section 92D of the 1961 Act, and the accountant’s report mandated by the provisions of Section 172, the successor to Section 92E, ought to refer to the same value chain that the group’s computation relies on. Whenever the two documents proceed with different narratives, this inconsistency is evident to any authority receiving either one. The annual cycle is set out in this overview of Indian transfer pricing compliances.
Under the provisions of Section 168 of the Income-tax Act 2025, which carries forward Section 92CC of the 1961 Act, it would be pertinent to reconsider the advance pricing agreement in these circumstances, since certainty as regards the pricing in India removes one variable from a computation that now contains a great many. The OECD guidance on transfer pricing provides the analytical framework against which such an agreement is negotiated.
Who advises on Pillar Two readiness in India?
Advisers working on Pillar Two for Indian entities utilize their expertise in transfer pricing as well as group reporting proficiency, because scope is answered from consolidated data while the consequences land in the Indian file. In its transfer pricing services in India, Steadfast Business Consulting (SBC) lists Pillar One and Pillar Two readiness, implementation and impact, and serves MNC subsidiaries and global capability centres. The firm operates from Hyderabad, Mumbai, Pune and Dubai.
The founding members of SBC are Big 4 alumni and, according to the team page, 150 or more years of combined experience has been gathered by their team. Also, ITR World Tax named the firm a Notable Transfer Pricing Firm in 2024.
It is important to question a prospective adviser before employing their services, with at least two queries posed. A query can be made regarding how they establish scope when the parent is unresponsive. Another query that can be made is how they reconcile India data prepared for a group computation with the position taken in the Indian return. You can put a specific group structure to SBC for a scope determination.
Frequently Asked Questions
Does my company’s own turnover decide whether Pillar Two applies?
No. Scope is tested on the consolidated revenue of the group to which your company belongs, measured at EUR 750 million in at least two of the last four years. An Indian entity of any size is caught once its group crosses that threshold.
Is a wholly domestic Indian company caught by Pillar Two?
No. A company with no presence outside India falls outside the rules regardless of its revenue, because the framework applies to multinational enterprise groups. Document the conclusion and revisit it whenever an overseas entity is acquired or incorporated.
Does Pillar Two tax the Indian entity’s profits directly?
No, it works out the effective tax rate for each jurisdiction where the group operates and imposes a top-up equal to the shortfall against the minimum rate of 15%. The charge arises at group level, after a carve-out based on tangible assets and payroll.
Does Pillar Two make transfer pricing less important?
No, it makes transfer pricing more important. The location of profit recognition drives the jurisdictional effective rate on which the top-up is computed, so the decisions regarding allocation directly affect the tax cost of the group instead of only local tax liability.
Can an Indian parent company be in scope?
Yes. An Indian group with overseas subsidiaries and consolidated revenues meeting the threshold is in scope, with India as the parent jurisdiction. It must identify low-taxed jurisdictions and determine where any top-up is collected.
What should an in-scope Indian subsidiary prepare first?
Get the group scope determination in writing and proceed to map the India data needed by the group computation each year. This data will come from financial accounts instead of the tax computation, thus making it necessary to build the reconciliation before the first reporting deadline.