OECD Pillar 1 and Pillar 2: The Future of International Taxation Explained Simply in 2026

If you follow international tax news, you've certainly come across the terms "Pillar 1" and "Pillar 2" of the OECD. These are the two most ambitious reforms of international taxation since the creation of corporate income tax a century ago. Pillar 1 aims to reallocate taxing rights for digital giants. Pillar 2 aims to impose a global minimum tax rate of 15% on large multinational corporations. Together, they are redrawing the rules of the global tax game—and they are raising a legitimate question for every expat: will this eventually affect me?

Our BEPS 2.0 guide covered the technical mechanisms. This guide goes further: it explains Pillars 1 and 2 in an accessible way, deciphers the political forces at play, projects development scenarios for the next 5-10 years, and analyzes what the future of international taxation concretely means for someone living in Paraguay with a US LLC and 0% income tax.

Pillar 1: Reallocating tax for digital giants

The problem Pillar 1 seeks to solve

The current international tax system is based on a century-old principle: a company is taxed where it has a physical presence (factory, office, employees). This principle worked when companies were steel mills or car manufacturers. It no longer works when companies are Google, Facebook, or Netflix:

• Google generates billions in advertising revenue in France thanks to French users' searches—without having a significant factory or office in France. Its tax domicile is in Ireland (CIT 15%), its patents in Bermuda (CIT 0%).
• Netflix has 15 million subscribers in France, each paying €13-20/month—but Netflix is taxed in the Netherlands and the USA, not in France.
• Facebook/Meta monetizes data from 40 million French users—without a significant physical presence in France.
• Result: the countries where customers are located (the "market countries") receive almost no tax on these companies' profits. The tax goes to the countries where headquarters and patents are located (Ireland, Netherlands, Luxembourg, Bermuda)—often at very low rates.

Pillar 1 aims to correct this asymmetry by giving market countries the right to tax a portion of the profits of very large companies—even if they do not have a physical presence there.

The simplified mechanism

Pillar 1 operates in two steps:

1. Identify the companies concerned: Only companies with global revenue exceeding €20 billion AND a profit margin greater than 10% are affected. This is an extremely high threshold—around 100 companies worldwide (Apple, Microsoft, Alphabet/Google, Amazon, Meta, Samsung, LVMH, Nestlé, etc.). Not SMEs. Not freelancers. Not US LLCs.
2. Reallocate a fraction of profits: 25% of the "residual" profit (i.e., profit beyond the 10% margin) is reallocated to market countries proportionally to the revenue generated in each country. The market country can tax this fraction according to its own CIT rate.

Simplified example: TechCorp has a global revenue of €100 billion, a profit of €30 billion (30% margin), and generates 5% of its revenue in France (€5 billion). Residual profit = €30 billion - €10 billion ("routine" 10% margin) = €20 billion. The reallocable share = 25% × €20 billion = €5 billion. The France share = 5% × €5 billion = €250 million. France can tax this €250 million at its CIT rate (25%) = €62.5 million in tax.

Status in 2026: bogged down

Pillar 1 is the most ambitious—and most bogged down—part of the OECD reform:

• The Multilateral Convention (MLC): The framework agreement that was supposed to implement Pillar 1 has not yet been signed by all necessary countries. Negotiations on technical details (allocation formula, dispute resolution mechanism, elimination of national digital taxes) are complex and politically sensitive.
• US blockage: The USA—home to the most affected companies (Apple, Google, Amazon, Meta, Microsoft)—is reluctant. The US Congress views Pillar 1 as a transfer of US taxing rights to other countries. No Senate majority to ratify the MLC in 2026.
• National digital taxes: Pending Pillar 1, many countries have adopted their own digital services taxes (DST). France has its "GAFA tax" (3% of the revenue of large digital platforms in France). Spain, Italy, and the UK have similar taxes. These taxes were intended to be temporary (pending Pillar 1)—but as Pillar 1 is delayed, they are becoming permanent.
• Realistic timeline: Pillar 1's entry into force has been pushed back to 2028 at the earliest—and some experts believe it will never be implemented in its current form. The probability of Pillar 1 succeeding as negotiated is estimated at 30-40% by international tax experts.

Impact for an expat in Paraguay

None. Pillar 1 concerns about 100 multinationals with over €20 billion in revenue. If you're reading this guide, you're not the CEO of Apple. Your US LLC with €200,000/year in revenue is not on the radar. Pillar 1 is a geopolitical issue between major powers (USA, EU, China) and large corporations (GAFAM)—not an issue for individual expats.

Pillar 2: The 15% global minimum tax

The problem Pillar 2 seeks to solve

Pillar 2 addresses a different problem: the race to the bottom for corporate income tax rates. For 40 years, countries have been lowering their CIT rates to attract multinationals:

• The global average CIT rate has fallen from ~40% in the 1980s to ~23% in 2026.
• Some countries offer effective rates of 0-5% through special regimes (patent boxes, holdings, free zones).
• Multinationals play countries against each other: "If you don't lower your rate, we'll move our headquarters/patents/profits to your neighbor."
• Result: states lose hundreds of billions in tax revenue each year. Ordinary citizens (who cannot move their income) compensate through income tax and social contributions → increasing tax pressure on households.

Pillar 2 sets a floor: no subsidiary of a large multinational will be taxed at less than 15%, regardless of the country where it is located. If a country taxes a subsidiary at 5%, the parent company's country can levy an additional 10% to bring the total to 15%. The race to the bottom is stopped—the floor is set.

The accessible GloBE mechanism

Pillar 2 (official name: GloBE—Global Anti-Base Erosion) is based on two complementary rules:

Rule 1: The IIR (Income Inclusion Rule)

• The parent company's country calculates the effective tax rate of each subsidiary in each country.
• If a subsidiary is taxed at less than 15% in its country, the parent company pays a "top-up tax" in its own country to bring the rate to 15%.
• Example: an Irish subsidiary of a French group is taxed at 12%. France (the parent company's country) levies an additional 3% (15% - 12%) on the Irish subsidiary's profits.

Rule 2: The UTPR (Undertaxed Payment Rule)

• If the parent company's country does not apply the IIR (e.g., the USA which has not adopted Pillar 2), ANOTHER country in the group can levy the top-up tax.
• This is a "safety net" mechanism—if the parent company does not collect the top-up, another country does it instead.

The QDMTT (Qualified Domestic Minimum Top-Up Tax)

• "Low-tax" countries can choose to adopt their own QDMTT—a local minimum tax of 15% that captures the top-up tax BEFORE the parent company's country does.
• Logic: if Ireland knows that France will levy an additional 3% on the Irish subsidiary's profits, Ireland prefers to levy these 3% itself (at least the money stays in Ireland instead of going to France).
• Ireland, Switzerland, Hong Kong, Singapore, and the UAE have all adopted or announced QDMTTs to "keep" the top-up tax in their own countries.

Status in 2026: in implementation

Unlike Pillar 1 (bogged down), Pillar 2 is progressing rapidly:

Country/Region	Pillar 2 Status in 2026
European Union	Directive transposed (December 2022). IIR in effect since 2024. UTPR since 2025. All member states apply Pillar 2.
United Kingdom	In effect since 2024 (Multinational Top-up Tax + Domestic Top-up Tax).
Japan	In effect since April 2024.
South Korea	In effect since 2024.
Canada	Legislation adopted. In effect 2024-2025.
Australia	Legislation adopted. In effect 2025.
Switzerland	QDMTT adopted by referendum in 2023. In effect since 2024.
Singapore	QDMTT announced. In implementation.
Hong Kong	QDMTT under consultation. Implementation planned 2025-2026.
UAE	QDMTT announced (in addition to the 9% CIT introduced in 2023).
United States	NOT adopted. Congress is blocking. The USA has GILTI (similar CFC mechanism) but not Pillar 2 as is. Divergence with the rest of the world.
Paraguay	NOT adopted. No QDMTT announced. No significant pressure (no multinationals with over €750M in Paraguay).

The American anomaly: GILTI vs Pillar 2

The biggest point of friction for Pillar 2 is the American position. The USA has its own anti-CFC mechanism—GILTI (Global Intangible Low-Taxed Income)—which operates differently from Pillar 2:

Criterion	Pillar 2 (GloBE)	GILTI (USA)
Minimum rate	15 %	~10.5-13.125% (50% of US CIT rate of 21%, with 80% tax credit)
Calculation	Country by country (jurisdiction by jurisdiction)	Global (all foreign income aggregated—one country at 25% compensates for a country at 0%)
Threshold	Consolidated revenue > €750M	Any "Controlled Foreign Corporation" of a US shareholder
Substance exclusion	Yes (SBIE—Substance-Based Income Exclusion: 5% of payroll + 5% of tangible asset value are excluded)	Yes (QBAI—10% of tangible asset value are excluded)

The problem: US GILTI does not meet all Pillar 2 specifications (global vs. country-by-country calculation, rate below 15%). If the USA does not adopt Pillar 2, other countries could apply the UTPR against US subsidiaries—taxing the "undertaxed" profits of US companies worldwide. This is a major geopolitical tension that could lead to trade retaliation (tariffs, sanctions).

For an expat in Paraguay, this battle between major powers is a spectacle to observe from afar—it does not directly concern you.

The future of international taxation: the 5 structural trends

Trend 1: Convergence of CIT rates towards 15-20%

Pillar 2 creates a 15% floor for multinationals. The cascading consequences:

• Countries that offered rates < 15% are raising them (Ireland: 12.5% → 15%, UAE: 0% → 9% + QDMTT, Singapore: QDMTT).
• Countries that had rates of 25-35% are no longer lowering them below 15% (the floor prevents the race to the bottom).
• Probable result in 10 years: global convergence of effective CIT rates towards 15-20% (vs 0-40% today). Disparities between countries are shrinking—"tax competition" on CIT is losing its intensity.
• Impact for expats: The convergence of CIT rates makes structuring through companies less advantageous. But it does not affect the taxation of individuals (income tax and territoriality are not covered by Pillar 2). Your transparent US LLC (no CIT) + PY residence (0% territoriality on foreign income) remains effective regardless of the convergence of CIT rates.

Trend 2: The end of preferential corporate tax regimes

Special regimes that offered rates < 15% to companies are disappearing or being reformed:

• Patent boxes: Regimes that taxed intellectual property income at 5-10% (Luxembourg, Netherlands, Belgium, Ireland) are being adjusted to comply with the 15% floor for groups covered by Pillar 2.
• Exempt holdings: Holding structures that allowed for receiving dividends and capital gains at 0-5% are being reevaluated. Luxembourg, the Netherlands, and Switzerland are adapting their regimes.
• Free zones: Zero-tax free zones (UAE, some Asian countries) are introducing QDMTTs for companies covered by Pillar 2.
• Impact for expats: If you have a Luxembourg holding company or a holding structure via a patent box, check with your lawyer if Pillar 2 impacts your effective rate. For a transparent US LLC of an expat in Paraguay: no impact (the LLC is not a subsidiary of a group with over €750M in revenue).

Trend 3: The rise of transparency (expanded CRS, DAC9+, CARF crypto)

Tax transparency is only going in one direction: more data, more exchanges, more cross-referencing. Current systems (CRS, DAC2-9, FATCA) will be supplemented by:

• CARF (Crypto-Asset Reporting Framework): Global extension of crypto reporting (beyond the EU). Adoption planned by 50+ countries by 2027.
• Interconnected beneficial ownership registers: The EU is pushing for a global register of beneficial owners of companies, trusts, and foundations. Your US LLC, your Paraguayan SRL, your Luxembourg holding—the real owners will be known to all tax administrations.
• AI and big data: Tax administrations are investing heavily in AI to cross-reference data and identify anomalies. The French DGFiP is a pioneer, but others are following (UK HMRC, Australian ATO, Canadian CRA).
• Impact for expats: Transparency is YOUR ALLY in a territorial country. The more tax administrations see your accounts and structures, the more they realize that everything is in order: effective PY residence, foreign income exempt under PY law, up-to-date DNIT declarations. Transparency confirms your position instead of threatening it. See our CRS guide.

Trend 4: Pressure on wealthy individuals

After multinationals (Pillar 2), the next target will be ultra-rich individuals:

• The Zucman proposal (Brazilian G20, 2024): Minimum 2% tax on the net wealth of billionaires. ~3,000 people concerned worldwide. Estimated revenue: USD 200-250 billion/year.
• The EU Tax Observatory: Academic body led by Gabriel Zucman that publishes influential reports on the taxation of the ultra-rich. His recommendations fuel the European political debate.
• Reinforced exit taxes: France tightened its exit tax in 2026 (extended deferral period). Other countries are following suit (Norway introduced an exit tax in 2023). The trend is towards broadening and strengthening exit taxes to "capture" wealth before it leaves.
• Wealth taxes: Norway, Spain, and Colombia have strengthened their wealth taxes. France could return to an expanded wealth tax (the current IFI only covers real estate).

Impact for expats in Paraguay:

• A global minimum tax on the ultra-rich (Zucman type) would only concern fortunes > USD 100M—not "normal" expats.
• Exit taxes are an issue AT THE TIME OF DEPARTURE — not after. Once settled in Paraguay, the French exit tax is suspended (and canceled after 5-8 years). The main thing is to leave correctly and comply with reporting obligations during the suspension period.
• A Paraguayan wealth tax does not exist and is not under discussion. Paraguayan political culture is anti-wealth tax.
• The real long-term risk: a potential citizenship-based tax (like the USA), where France would tax its citizens even when they live abroad. This scenario is extreme (contrary to EU free movement), very politically unpopular, and far from being under discussion. But if it were to happen, Paraguayan nationality (obtained after 3 years) would offer a way out.

Trend 5: Fragmentation between geopolitical blocs

Despite the rhetoric of "global consensus," the international tax system is fragmenting:

• EU Bloc: rapid implementation of Pillar 2, pressure for Pillar 1, expansion of DAC, standardization of CFC rules via ATAD. The EU is the champion of tax coordination — and pressure on third countries.
• USA Bloc: unilateral approach. The USA has GILTI (not Pillar 2), FATCA (not CRS — asymmetry of reciprocity), and a Congress blocking Pillar 1. The USA participates in OECD discussions but implements in its own way.
• Emerging Countries Bloc: Brazil, India, South Africa are pushing for more taxing rights on multinationals (not satisfied with Pillar 1, which doesn't give them enough). Some might adopt unilateral measures (local digital taxes) outside the OECD framework.
• The "small" territorial countries: Paraguay, Panama, Hong Kong, Singapore navigate between the blocs — cooperating sufficiently (CRS, MAAC) to stay off blacklists, while preserving their competitive advantages (territoriality, low rates). Their strategy: comply with transparency standards without abandoning their tax sovereignty.

Impact for expatriates: fragmentation creates opportunities. As long as the major powers do not agree on a uniform system (which will take decades), differences between national tax systems persist — and expatriates can choose the most suitable system. Paraguay, as a cooperative territorial country outside the pressure blocs, is in a comfortable position.

5-10 year scenarios: what will happen?

Scenario A: Gradual Convergence (50% probability)

Pillar 2 takes root. More and more countries adopt it. Corporate tax rates converge towards 15-20%. Pillar 1 results in a diluted version (2028-2030). Transparency continues to expand (CARF, beneficial ownership registers). Discussions on a minimum tax for the ultra-rich progress slowly but do not materialize before 2035.

• Impact for expatriates in PY: no significant change. PY territoriality is not threatened. Pillar 2 does not cover individuals. The ultra-rich minimum tax only concerns billionaires. Transparency (CRS+, CARF) continues to increase but remains a non-event in a territorial country. Favorable status quo.

Scenario B: Reformist Acceleration (25% probability)

Pillar 2 is a success. The OECD launches a "Pillar 3" targeting ultra-rich individuals (wealth > €50-100 million). The Pillar 2 threshold is lowered from €750 million to €250 million. Exit taxes are harmonized at the OECD level (recommendation of a minimum of 15% on latent capital gains upon departure). Pressure on territorial countries intensifies (the OECD asks Paraguay to tax foreign income of residents at a minimum of 15%).

• Impact for expatriates in PY: potentially significant if Paraguay yields to pressure and changes its territoriality. But even in this "accelerated" scenario: reforms would take years to materialize (negotiations, legislation, implementation). Expatriates would have time to adapt (PY nationality obtained, diversified assets, adjusted structures). And the pressure would first target the ultra-rich — not freelancers earning €200,000/year.
• Preventive strategy: obtain Paraguayan nationality (3 years), diversify your assets geographically, capitalize quickly while the 0% window is open.

Scenario C: Fragmentation and Return to Bilateralism (25% probability)

The OECD consensus cracks. The USA definitively rejects Pillar 1 and Pillar 2. The EU moves forward alone with its own rules (DAC10+, European tax on multinationals). Emerging countries adopt unilateral measures (digital taxes, increased withholding taxes). The multilateral framework collapses in favor of bilateral agreements between blocs.

• Impact for expatriates in PY: paradoxically favorable. Fragmentation means less international coordination, therefore less pressure on small territorial countries. Paraguay can continue to apply its territoriality without significant multilateral pressure. Expatriates navigate between blocs by choosing the best jurisdictions for each activity.
• Risk: unilateral measures (digital taxes, increased withholding taxes) can increase the cost of certain transactions (a French client paying your US LLC could face an increased withholding tax on payments to "non-cooperative countries" — if France broadens its definition).

What Pillars 1 and 2 change for wealth management strategy

What remains unchanged

• Paraguayan territoriality: not threatened by Pillars 1 and 2 (they target companies, not individuals under territoriality).
• Transparent US LLC: not concerned by Pillar 2 (no corporate tax, no subsidiary of a group with €750+ million turnover).
• Investments via Interactive Brokers: not concerned (personal investments, no corporate structure).
• Luxembourg life insurance: not concerned (insurance product, not a multinational subsidiary).
• Real estate in Paraguay: not concerned (local tangible asset, outside the scope of the Pillars).

What could evolve in the long term

• Interposed holdings: if you have a Luxembourg holding company that holds equity interests, Pillar 2 can impact the effective tax rate of the holding company (if it is part of a covered group). For the majority of expatriates, this is not the case — but check if you have complex structures.
• French exit tax: the trend towards tightening is independent of the Pillars but is part of the same movement to "capture" wealth before it leaves. If you have significant equity interests, plan the exit tax deferral carefully.
• Cost of compliance: increased transparency (expanded CRS, CARF, DAC9) increases reporting obligations and compliance costs (accountant, lawyer). No additional tax — but increased management fees.

Recommended strategy: capitalize now

The 0% territoriality window is open today. It will probably still be open tomorrow, and the day after tomorrow, and in 5 years. But certainty decreases as the horizon lengthens. The rational strategy is to capitalize as much as possible now — while the rules are clear, stable, and favorable:

• Each year at 0% = a year of maximum capitalization that no one can retroactively reclaim.
• 5 years at 0% with €150,000/year in savings = €750,000 in additional net wealth (vs staying in France at 45-55%).
• 10 years at 0% with compounding effect (7%/year net investment) = €2+ million in additional wealth.
• Even if territoriality were to change in 10 years, the 10 years of 0% capitalization are definitively acquired. This is an irreversible advantage.

The future is uncertain — but the present is clear. Paraguay offers 0% on foreign income in 2026. Every day you stay in France instead of expatriating is a day of lost capitalization. The future of international taxation will happen without you — but your wealth is built with you, now.

The ecosystem to take advantage of the current window

• Paraguayan tax residency (from €1,400) — the foundation
• US LLC — the 0% invoicing structure
• Paraguayan bank account — local anchoring
• Paraguayan accounting (€30/month) — DNIT compliance
• Paraguayan nationality (after 3 years) — the ultimate plan B
• Paraguayan real estate — tangible wealth diversification

Conclusion

OECD Pillars 1 and 2 are the most significant international tax reforms in a century. Pillar 1 aims to reallocate profits of digital giants (100 companies with €20+ billion turnover) — but it is bogged down in negotiations and may never materialize. Pillar 2 imposes a 15% corporate tax floor on multinationals (groups with €750+ million turnover) — and it is being rapidly implemented in most major economies.

For an expatriate in Paraguay with a US LLC and 0% income: no impact in 2026, and probably no impact in the medium term. Pillar 2 targets multinationals, not individuals. Paraguayan territoriality is not a "low-tax regime for companies" — it is a tax system that exempts foreign income of residents. Two completely different concepts.

Underlying trends (increased transparency, convergence of corporate tax rates, pressure on the ultra-rich, geopolitical fragmentation) paint a changing tax landscape — but one that is changing slowly. Reforms that would affect "normal" individuals (income < €5 million/year) are at least 10-15 years away, if they ever happen. The 0% territoriality window is open, stable, and available.

The future of international taxation is fascinating to observe. But the important decision is not to predict the future — it's to enjoy the present. The present says: Paraguay offers 0% on your foreign income, legally, sustainably, and accessibly. Every year you take advantage of this window is a year of wealth built — and no one can take back what has already been built.

Do you want to capitalize while the window is open? Contact our team to start your Paraguayan tax residency (from €1,400). Pillars 1 and 2 do not concern you — but the French tax of 45% concerns you every day you stay. The choice is simple: observe the future of international taxation from France (paying 45%) or from Paraguay (paying 0%). The future is the same — the present is radically different.