1. [Home](https://www.meijburg.nl/index%2Ephp/) 2. [Nieuws](https://www.meijburg.nl/index%2Ephp/nieuws) 3. Transfer Pricing and Pillar Two: New Challenges for Tax Certainty # Transfer Pricing and Pillar Two: New Challenges for Tax Certainty 4 november 2026 ![pillar2](https://www.meijburg.nl/sites/default/files/styles/detail_banner_xl/public/2026-11/nieuws-pillar2-controversy-grote-banner.jpg) ## Transfer Pricing and Pillar Two: Tax Controversy Is Likely to Increase Globally Many multinational groups have historically viewed transfer pricing (TP) and Pillar Two as separate workstreams. Transfer pricing determines how profits are allocated across jurisdictions, while Pillar Two focuses on whether those profits are taxed at a minimum effective rate of 15%. In practice, however, the interaction between the two regimes is becoming increasingly significant. Decisions relating to TP policies, audits, documentation and dispute resolution may now have direct consequences for Pillar Two effective tax rate (ETR) calculations and potential Top-up Taxes. ## Transfer pricing adjustments may have unexpected Pillar Two consequences A TP adjustment that reallocates profits between jurisdictions can significantly alter a group's Pillar Two position. For example, if profits are shifted to a jurisdiction with a lower ETR, a TP adjustment may trigger or increase a Top-up Tax under the Income Inclusion Rule (IIR), the Undertaxed Profits Rule (UTPR) or a Qualified Domestic Minimum Top-up Tax (QDMTT). As a result, TP controversies should no longer be assessed solely from a local tax perspective. Multinationals increasingly need to evaluate the broader impact on their jurisdictional ETR calculations. Although the Pillar Two rules contain specific arm’s length adjustment mechanisms intended to mitigate risks of double taxation or non-taxation, the practical interaction between transfer pricing adjustments and Pillar Two outcomes can nevertheless be complex. During the OECD Tax Certainty Day on 4 November 2026, Manal Corwin, Director of the OECD Centre for Tax Policy, indicated that the OECD Inclusive Framework is working on “coordination mechanisms” and “instruments” to address controversy-specific issues arising in relation to Pillar Two and domestic tax legislation. These initiatives are apparently still in the pipeline. This is certainly good to hear. At the same time, however, Manal said essentially the same thing three years ago during a conference in Miami. The key questions therefore remain: when does the OECD expect to actually release these mechanisms and instruments, and what will their content, scope and practical operation be? ## Timing matters more than ever Transfer pricing audits and disputes often take years to resolve. Where a TP adjustment relating to an earlier year is agreed several years later, practical questions arise regarding the treatment of previously filed GloBE returns and Top-up Tax calculations. Although the OECD Administrative Guidance includes rules addressing subsequent adjustments, the interaction between TP controversies and Pillar Two compliance is expected to become an increasingly complex area in practice. ## Financial accounting has become a tax issue A key difference between TP and Pillar Two is the starting point. TP analyses generally focus on taxable profits, whereas Pillar Two calculations begin with consolidated financial accounting data. This means that TP professionals increasingly need to understand: - relevant accounting standards (including IFRS, EU-IFRS, US GAAP and other accepted financial reporting frameworks); - consolidation adjustments; - deferred taxes; - permanent differences; and - the relationship between accounting and tax reporting. The effective implementation of Pillar Two therefore requires closer cooperation between tax, finance and accounting teams. ## Substance matters more than ever Pillar Two includes a substance-based income exclusion (SBIE) linked to eligible payroll costs and tangible assets. Although the SBIE and TP operate under different rules, there is a common theme: business substance. Groups with genuine business functions, capable personnel and real operational activities are generally better positioned to support both a robust TP model and a larger SBIE that may reduce Top-up Tax exposure. This increases the importance of aligning legal structures with actual business operations. **Documentation should tell one consistent story** Tax authorities increasingly have access to multiple sources of information, including TP documentation, Country-by-Country Reporting (CbCR), financial statements and Pillar Two disclosures. Inconsistencies between these datasets are likely to attract greater scrutiny. As a result, Master Files and Local Files should no longer be prepared in isolation from Pillar Two compliance processes. ## APAs remain relevant, but are not sufficient Advance Pricing Agreements (APAs) continue to provide valuable certainty regarding the allocation of profits between jurisdictions. However, an APA does not automatically resolve Pillar Two issues and does not guarantee a particular ETR or eliminate potential Top-up Taxes. Businesses should therefore evaluate APAs together with their Pillar Two modelling rather than treating them as separate exercises. ## Tax controversy is likely to increase globally One emerging concern is the increased risk of double economic taxation when: - a TP adjustment increases profits in one jurisdiction; - corresponding relief is delayed or denied elsewhere; and - Pillar Two consequences arise in one or more jurisdictions. This may increase the importance of: - Mutual Agreement Procedures (MAPs); - bilateral and multilateral APAs; and - coordinated dispute resolution between competent authorities. However, it is currently unclear whether competent authorities have the legal authority to reach agreements on Pillar Two matters. For the issues identified above, it would be desirable for a taxpayer to be able to request, as part of a MAP, that the competent authorities agree on a consistent Pillar Two treatment of a transfer pricing adjustment, thereby avoiding disputes arising from divergent characterisations. At present, however, the legal basis for such coordination appears to be lacking. ## Key takeaways The era in which transfer pricing and minimum taxation could be analysed separately is rapidly coming to an end. Multinationals should stress-test how TP adjustments affect Pillar Two outcomes, ensure consistency between TP documentation and financial reporting, and integrate TP and Pillar Two considerations into planning, compliance and controversy strategies from the outset. ## How we can help Our Transfer Pricing and Tax Controversy teams assist multinational groups in navigating the increasingly complex interaction between TP and Pillar Two. We support clients with TP planning, documentation, benchmarking studies, APAs, MAPs, audit defense and dispute resolution, while helping them assess the broader implications for Pillar Two ETR calculations and Top-up Tax exposure. By combining transfer pricing, accounting and tax controversy expertise, we help organisations manage both substantive tax risk and procedural uncertainty in a rapidly evolving international tax landscape. 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