Transfer pricing and Pillar Two:
how a pricing adjustment changes the minimum tax.

Why TP and Pillar Two connect

Pillar Two computes, for each jurisdiction, an effective tax rate (ETR) = covered taxes ÷ GloBE income. When a country's ETR falls below 15%, a top-up tax is charged to reach 15% (OECD GloBE Rules; in Brazil, Law 15,079/2024, in force since January 1, 2025, for groups with consolidated revenue above EUR 750 million).

Transfer pricing enters precisely the base of that calculation: it defines how much profit is allocated to each country (Law 14,596/2023). And not by chance — the GloBE Rules themselves require cross-border intragroup transactions to be priced at arm's length for GloBE income (Article 3.2.3 of the Model Rules). Change the profit allocation through TP and you change the ETR denominator — and, with it, the top-up. The two disciplines, once handled by separate teams, now condition each other: a transfer pricing decision now has a direct consequence for the group's minimum tax (which reaches groups with revenue ≥ EUR 750 million in 2 of the 4 preceding fiscal years).

It helps to see why the connection is structural rather than incidental. Pillar Two does not look at a single legal entity in isolation; it blends all the constituent entities resident in the same jurisdiction and tests them together. So the denominator of the Brazilian ETR is the sum of the GloBE income of every Brazilian entity of the group — and transfer pricing is exactly what decides how much of the group's worldwide margin lands inside that sum. A royalty paid to a related party abroad, the margin on an intercompany sale of goods, the rate on an intragroup loan, the charge for a shared service: each of these is a transfer pricing call, and each of them moves profit into or out of the Brazilian blend. Before Pillar Two, the worst case of an aggressive call was a local assessment; now the same call can quietly reset the group's minimum-tax exposure in a way that no local IRPJ/CSLL review would ever reveal.

How the calculation works — and where TP enters

The calculation follows a sequence in the OECD GloBE Rules: you determine the jurisdiction's net GloBE income (Chapter 3, starting from financial accounting with its own adjustments), add the adjusted covered taxes (Chapter 4) and divide one by the other to reach the ETR (Article 5.1). If the ETR falls below 15%, the top-up applies to the excess profit — net of the substance-based income exclusion (the SBIE: a percentage of payroll and tangible assets in that jurisdiction). In formula: top-up = (15% − ETR) × excess profit.

The exact point where transfer pricing enters is Article 3.2.3 of the Model Rules: cross-border transactions between group entities must be priced at arm's length for GloBE-income purposes — the same arm's length yardstick of Law 14,596/2023. A TP adjustment that changes the profit allocated to Brazil changes the jurisdiction's GloBE income; and, for the ETR to remain coherent, the corresponding tax must also be adjusted in the numerator (Chapter 4). The golden rule: profit and tax move together — an adjustment that moves one without the other distorts the ETR.

That is why the accounting/tax profit of TP and GloBE income connect, but are not identical: they require reconciliation. And that is why the intragroup pricing decision is no longer a purely local problem — it feeds, with the same data, two calculations that must tie out.

IIR, UTPR and QDMTT: why Brazil chose the QDMTT

The GloBE Rules have three collection mechanisms, in order of priority. The IIR (Income Inclusion Rule) has the ultimate parent collect, in its own country, the top-up of its low-taxed subsidiaries. The UTPR (Undertaxed Profits Rule) is the backstop: when no IIR reaches the undertaxed profit, the group's other jurisdictions capture the residue, by denying deductions or requiring an adjustment. And the QDMTT (Qualified Domestic Minimum Top-up Tax) is the domestic minimum tax — the low-taxed jurisdiction itself charges the top-up on its own profit, before the IIR or the UTPR can act.

Brazil opted for the QDMTT, implemented as the CSLL Surtax. The logic is one of revenue sovereignty: if the ETR of a Brazilian operation falls below 15%, it is better that Brazil itself collects the difference than to see it captured by the foreign parent via another country's IIR. That is why the OECD's recognition of the Brazilian QDMTT (August 2025) matters so much: it ensures that the top-up paid here is accepted abroad — avoiding double charging — and that the QDMTT safe harbour dispenses with a recalculation by the parent.

The priority order is what makes the QDMTT choice decisive. A well-designed QDMTT sits first in line: it is computed and collected before the IIR or the UTPR has anything to bite on. If Brazil had stayed out, the same shortfall on Brazilian profit would not have disappeared — it would simply have been collected somewhere else, by the country of the ultimate parent under its IIR, or, failing that, by the other group jurisdictions under the UTPR. In other words, the 15% would have been paid regardless; the only open question was which treasury would receive it. By legislating a recognized QDMTT, Brazil ensured the answer is its own. For the group, the practical effect is that the Brazilian top-up becomes a known, locally administered figure rather than an unpredictable charge surfacing in a foreign parent's return — easier to forecast, to provision for, and to reconcile against the transfer pricing position that produced it.

When the adjustment triggers the top-up

A TP adjustment that increases taxable profit in a low-tax jurisdiction reduces that country's ETR (more profit, same tax) — and can push it below 15%, activating or increasing the top-up. The reverse also holds: reallocating profit to a high-tax jurisdiction raises the ETR and can reduce the top-up.

The effect is counterintuitive for anyone looking only at the local saving. A TP structure that "saves" IRPJ/CSLL in Brazil via profit allocation may, in an in-scope group, simply shift the revenue to the top-up tax — cancelling the saving. That is why a TP decision, in a group subject to Pillar Two, must be simulated through the ETR lens as well, jurisdiction by jurisdiction. (Interaction of the GloBE Rules with Law 14,596/2023 — modeling; no single provision.)

A practical case: when the ETR drops below 15%

Take an illustrative case, as if it were a client of the firm. A Brazilian subsidiary of an in-scope group (group revenue above EUR 750 million) reports, in 2025, a net GloBE income in Brazil of BRL 200 million. Thanks to legitimate incentives (a regional IRPJ reduction combined with R&D benefits), its covered taxes for the year total only BRL 24 million. The Brazilian ETR is therefore 12% — below the 15% floor.

The top-up applies. The substance-based exclusion (SBIE) removes, say, BRL 60 million (a percentage of payroll and tangible assets in Brazil), leaving an excess profit of BRL 140 million. The CSLL Surtax is then (15% − 12%) × BRL 140 million = BRL 4.2 million. Much of what the incentive forwent in revenue comes back as the top-up tax — and, because Brazil has a recognized QDMTT, that amount stays here, instead of being captured by the foreign parent.

Now invert the lens and the planning point becomes obvious. Suppose the group had been weighing a transfer pricing structure that would have moved a further BRL 50 million of margin out of the same Brazilian subsidiary. Looked at locally, it promised to spare roughly BRL 17 million of combined IRPJ/CSLL. But that move pushes the Brazilian ETR even lower, widens the excess profit, and enlarges the CSLL Surtax base — so most of the apparent IRPJ/CSLL saving simply re-emerges as additional top-up collected in Brazil. The headline saving and the real saving are different numbers, and only an ETR simulation tells them apart before the structure is implemented.

The reading for the company is direct: for a group subject to Pillar Two, the benefit of an incentive — or the saving from a transfer pricing structure — must be measured net of the top-up. A pricing adjustment that moves profit, or an incentive that reduces the burden, may simply move the tax from one pocket to another, with no real gain. That is why the decision is made with the ETR simulated in advance, not discovered in the return. (Illustrative figures; the classification of each incentive and adjustment under the GloBE Rules is case by case.)

The double-taxation risk

The classic TP risk is aggravated under Pillar Two. If Brazil adjusts the price (increasing taxable profit here) and the other jurisdiction does not make the corresponding adjustment, the same profit is taxed twice — and the GloBE layer can add complexity by recomputing the ETRs on both sides.

With Pillar Two, the arithmetic becomes more delicate because the double taxation does not vanish on its own: the top-up applies to a jurisdiction's net income, but it does not "credit" the extra tax paid on the other end by a unilateral adjustment. A primary adjustment without the matching correlative adjustment can, at the same time, generate the classic economic double taxation and distort the ETR of both countries — stacking two layers of risk where there used to be one.

The path to a solution is the corresponding adjustment and the mutual agreement procedure (MAP) provided in double-tax treaties. For the group, the practical point is to document the TP position consistently on both ends, narrowing the window for divergence between tax administrations. (Applicability per the relevant treaty, case by case.)

Outbound × inbound: what to align

Brazilian multinational (outbound). With foreign subsidiaries, it must compute the ETR per jurisdiction and consider the GloBE Rules (including the income inclusion rule and each country's QDMTT); profit allocation through TP directly affects where there will be a top-up.

Brazilian subsidiary of a foreign group (inbound). It is subject to the Brazilian CSLL Surtax if the ETR in Brazil falls below 15% (Law 15,079/2024). For the inbound, this changes the conversation with the parent: pricing decisions that historically "dried out" the Brazilian base to reduce IRPJ/CSLL may now activate the CSLL Surtax — and, with the QDMTT, without the benefit of shifting the revenue abroad. Aligning the group's global transfer pricing policy with the Brazilian reality becomes a condition of efficiency, not a local detail.

In both cases there is a data challenge: GloBE income starts from financial accounting with its own adjustments, while TP starts from arm's length — and the two areas (tax/TP and the Pillar Two team) must reconcile assumptions, or the numbers in the Local File and the GloBE Information Return will be inconsistent. An advantage of the Brazilian design: the OECD recognized the CSLL Surtax as a QDMTT and QDMTT Safe Harbour (August 18, 2025), which makes Brazil keep the top-up domestically, rather than the revenue going to the parent's jurisdiction via the income inclusion rule.

Incentives × the top-up

Incentives that reduce the effective burden in Brazil — such as the IRPJ reduction in SUDENE/SUDAM areas and the R&D benefits of the Lei do Bem — can push the group's Brazilian ETR below 15%. For an in-scope group (≥ EUR 750 million), what the incentive forgoes can come back as the CSLL Surtax (domestic top-up) — eroding, wholly or partly, the incentive's advantage.

There is more favorable GloBE treatment for certain credits (for example, qualified refundable tax credits), but most Brazilian incentives operate as a tax reduction and tend to pressure the ETR. The decision to use — or redesign — incentives now depends on the Pillar Two impact. (Each incentive's GloBE classification: case by case.)

Compliance: the GIR and reconciliation with TP

Pillar Two brought its own ancillary obligation: the GIR (the CSLL Surtax return, aligned with the OECD GloBE Information Return), in which the group reports, jurisdiction by jurisdiction, the computation of GloBE income, of covered taxes, of the ETR and of any top-up. It does not replace the transfer pricing documentation (Local File, Master File and CbCR of IN RFB 2,161/2023): these are distinct obligations that feed on the same data and must be consistent. A number that diverges between the Local File and the GIR is, in itself, a risk signal.

There are safe harbour shortcuts that ease the calculation during the transition: the transitional CbCR (the de minimis, simplified-ETR or routine-profit tests), the QDMTT safe harbour — which, in the Brazilian case, dispenses with the parent's recalculation, since the CSLL Surtax is a recognized QDMTT — and the permanent Simplified ETR. Mind the deadline: the transitional CbCR applies to fiscal years up to 12/31/2026; relying on it alone, without preparing the full GloBE calculation, creates the risk of a "cliff" in 2027.

In practice the reconciliation runs in both directions and on a tight clock. Going one way, the arm's length result documented in the Local File feeds the starting profit of the GloBE computation; going the other, a top-up triggered in the GIR is often the first signal that a transfer pricing position is concentrating margin in a jurisdiction whose ETR cannot absorb it. The two files therefore have to be built from a single, shared dataset rather than assembled independently and stitched together afterward — because a discrepancy between them is not a formatting nuisance, it is the kind of inconsistency a tax authority reads as a flag. Sequencing matters too: the transfer pricing positions for the year should be settled before the GloBE close, so the ETR can be tested against the prices the group actually intends to defend, not reverse-engineered to fit a top-up the group did not anticipate.

The organizational consequence is clear: the transfer pricing and Pillar Two areas are no longer silos. The same intragroup pricing decision must tie out across both returns, and the reconciliation between TP's arm's length and the GloBE-income adjustments becomes part of the group's tax close. Do not confuse, moreover, the two thresholds: the Pillar Two scope is the group's EUR 750 million revenue (CbCR), distinct from the BRL thresholds of the TP file (IN 2,161/2023).