CDS (I) 2022 General Knowledge · Question 101 of 120

Correct — C, Minimum global corporate tax. The phrase comes from the OECD and G20 Inclusive Framework's Statement on a Two-Pillar Solution to Address the Tax Challenges Arising from the Digitalisation of the Economy, adopted on 8 October 2021 and approved by 137 jurisdictions. Pillar One reallocates a share of the profits of the very largest multinationals — those above €20 billion of global revenue — to the market countries where their customers actually are, whether or not the company has a physical presence there. Pillar Two sets a floor of 15 per cent on the effective corporate tax those groups pay, so that shifting profit into a low-tax jurisdiction stops paying: if a subsidiary is taxed below the floor, another country may collect the difference. Together the two pillars are the answer to base erosion and profit shifting, which is why the package is described as a minimum global corporate tax.

• (a)Global energy security in near future — Energy security has its own institutional vocabulary — the International Energy Agency's strategic stocks, the Energy Transitions programme, the Solar Alliance — and none of it uses a two-pillar formulation.
• (b)International cyber crime reporting — Cross-border cybercrime cooperation runs through the Budapest Convention and the UN's cybercrime negotiations. No two-pillar package belongs to that field.
• (d)Prevention of international money laundering — Anti-money-laundering work is coordinated by the Financial Action Task Force, whose framework is a set of forty recommendations and a grey-and-black listing process, not a two-pillar solution. The Task Force does sit alongside the OECD in Paris, which is probably why this option is here.

The two-pillar package is the outcome of the OECD and G20 project on base erosion and profit shifting, the practice by which multinational groups book profits in low-tax jurisdictions while earning them elsewhere. Pillar One changes where a slice of profit may be taxed, giving market jurisdictions a claim on the residual profit of the largest and most profitable groups. Pillar Two changes how little profit may be taxed anywhere, through a set of interlocking rules that top a group's effective rate up to 15 per cent country by country. One of the package's stated purposes was to replace the unilateral digital services taxes that individual countries had begun levying, of which India's equalisation levy was one.

Current-affairs terminology questions like this are answered by decoding the phrase rather than by recall. The word 'pillar' in international economic diplomacy almost always points at a negotiated architecture with two separable legs, and the only such package that dominated the news in the months before this April 2022 paper was the tax deal announced in October 2021. A useful cross-check is that the Financial Action Task Force is the body behind option (d) and it does not describe its work in pillars. Since the exam the picture has moved. The 15 per cent minimum of Pillar Two began to apply in a long list of jurisdictions from 31 December 2023 and through 2024 and 2025, while Pillar One's reallocation rules, carried in a multilateral convention, have lagged well behind their original timetable; and in January 2025 the United States announced it would not apply the deal, an impasse eased in January 2026 by an accommodation exempting US-headquartered groups from Pillar Two.

• The Statement on a Two-Pillar Solution was adopted on 8 October 2021 under the OECD and G20 Inclusive Framework and approved by 137 jurisdictions.
• Pillar One reallocates taxing rights over multinationals with global revenue above €20 billion to the market jurisdictions where their customers are.
• Pillar Two sets a minimum effective corporate tax rate of 15 per cent for large multinational groups.
• The package is the culmination of the OECD and G20 work on base erosion and profit shifting.
• Pillar Two rules began taking effect in many jurisdictions from 31 December 2023 onward, ahead of Pillar One's multilateral convention.

• Reading 'two-pillar' as a security or energy formulation. In this period it belongs to international taxation.
• Swapping the two pillars — Pillar One is about where profit may be taxed, Pillar Two about the minimum rate.
• Treating the 15 per cent as a headline corporate tax rate every country must adopt. It is a floor on the effective rate paid by large multinational groups, not a rate for all companies.

As a what-does-this-term-refer-to item, or as a statements question on which pillar does what and what the revenue threshold and minimum rate are.

• practice — not a real PYQ

  Under the OECD and G20 two-pillar package agreed in October 2021, the minimum effective corporate tax rate for large multinational enterprises was fixed at

  • (a)10 per cent
  • (b)12.5 per cent
  • (c)15 per cent
  • (d)21 per cent

  Answer(c) 15 per cent — this is Pillar Two, the global minimum tax floor.

• practice — not a real PYQ

  The term 'Base Erosion and Profit Shifting' refers to

  • (a)the loss of topsoil from agricultural land
  • (b)strategies by which multinational firms move profits to low-tax jurisdictions
  • (c)the depletion of a country's foreign exchange reserves
  • (d)the migration of skilled workers to higher-income countries

  Answer(b) strategies by which multinational firms move profits to low-tax jurisdictions — the problem the OECD and G20 two-pillar package was designed to close.