This week David Elkins (Netanya) reviews a new work by Jinyan Li (York), Pillar 2 as a New International Fiscal Law, 121 Tax Notes Int’l 637 (Jan. 26, 2026):

In this week’s feature article, Professor Jinyan Li examines the transformative impact of Pillar 2, the global initiative designed to ensure that large multinational enterprises (MNEs) pay a minimum level of tax, set at 15%, in every jurisdiction where they operate. By late 2025, around 60 jurisdictions, including most EU countries and several others, had enacted or proposed Pillar 2 legislation. Notably, the United States and China, the two largest economies, have not implemented Pillar 2, reflecting ongoing debates about sovereignty and competitiveness.

Pillar 2 is part of the OECD/G20’s two-pillar solution to address tax challenges arising from the digitalization of the economy and the “race to the bottom” in tax competition. It aims to curb profit shifting and base erosion by setting a global minimum tax. The initiative was propelled by increased international cooperation following the global financial crisis and the COVID-19 pandemic, as well as a growing consensus on the need for fairer tax systems. It operates via three main mechanisms. The first is the Income Inclusion Rule (IIR), which allows the parent entity’s jurisdiction to impose a top-up tax if subsidiaries are undertaxed. The second is the Undertaxed Profits Rule (UTPR), which serves as a backstop, enabling other jurisdictions to impose the tax if the parent jurisdiction does not. The third is the Qualified Domestic Minimum Top-Up Tax (QDMTT), which permits source countries to impose their own top-up tax, which takes precedence over IIR and UTPR. These rules are based on the OECD’s GloBE model and must be transposed into domestic law. The system is coordinated through OECD guidance, with in-scope MNEs required to file a global information return shared among tax authorities.

Li argues that Pillar 2 creates a new international fiscal law regime that does not rely on formal international treaties. Instead, it is enforced through coordinated domestic laws and evolving OECD guidance, making the OECD a de facto rule maker, interpreter, and administrator.

This regime challenges traditional fiscal sovereignty by linking the tax policies of different states and limiting their ability to use tax incentives to attract investment. The concept of “networked fiscal sovereignty” emerges, where states coordinate their fiscal policies within a multilateral framework, balancing rights and responsibilities. Particularly intriguing is Li’s argument that the global minimum tax under Pillar 2 is not a “real” tax in the conventional sense, as it taxes the fiscal policies of other states rather than the taxpayer’s own income. The UTPR, in particular, is unprecedented, functioning more as an enforcement mechanism or penalty than a standard tax.

Pillar 2 primarily targets mobile, intangible, or financial income, leaving substance-based tax incentives and incentives in high-tax jurisdictions largely unaffected unless they reduce the effective tax rate below 15%. Safe harbors further limit its scope. The regime aims to shift tax revenues from low-tax to high-tax jurisdictions, discouraging tax competition and profit shifting. However, it does not create new taxing rights but reallocates existing ones.

Looking toward the future, Li posits that the sustainability of Pillar 2 depends upon the perceived benefits and the strength of the network among participating states. While it may empower developing countries to tax large MNEs, it also requires states to cede some sovereignty to the OECD framework. The proliferation of safe harbors and the parallel U.S. regime may weaken Pillar 2’s effectiveness over time, and China’s reluctance to implement Pillar 2 reflects concerns about the potential impact of Pillar 2 on its tax incentives and competitiveness.

Li concludes that Pillar 2 represents a significant shift in international fiscal law, establishing a coordinated, networked approach to corporate taxation without formal treaties. It reflects a new notion of sovereignty, balancing fiscal rights and responsibilities among states in a globalized economy, and serves as a case study in addressing global challenges through innovative legal frameworks.

I found intriguing Li’s description of Pillar 2 as an attempt to shift from a treaty-based international tax order, in which countries seek to limit the taxing power of other states, to a more centralized regime, in which countries seek to ensure that others impose tax, and while the seeds of this approach were planted back in the 1990s with the OECD’s report on harmful tax competition, Pillar 2 is by far the most ambitious project so far to implement such a policy. One question that the author does not address directly, but that her analysis implicitly raises, is whether Pillar 2 represents an equilibrium point in international tax coordination or merely an intermediate stage in a broader process of integration, one in which states progressively relinquish greater elements of fiscal sovereignty in favor of OECD-mediated norms.

One practical problem that the centralized Pillar 2 regime is likely to face is what might be described as “tax avoidance” by countries themselves. Just as taxpayers have long sought to minimize their tax burdens by exploiting the nuances of tax rules, states themselves may seek to remain formally compliant with Pillar 2 while designing regimes that effectively preserve competitive advantages for investors. If such forms of state-level avoidance become widespread, will the centralized regime respond by adopting anti-avoidance measures against such states, or will the phenomenon precipitate the downfall of the centralized new order (or will we witness a multi-stage process in which anti-avoidance measures contribute to the downfall)?

As the contours of this new international tax architecture continue to take shape, overviews such as Professor Li’s are particularly valuable. Alongside her accessible technical description of current developments, she enables readers to see not only the trees, but the forest as well.

Here is the rest of this week’s SSRN tax roundup:

Reuven S. Avi-Yonah (Michigan) & Poonam Sidhu, Tiger Global and Treaty Interpretation (2026)

Jay Butler (Virginia), Global Tax for Repair, _ NYU J. Int’l Law & Pol. _ (forthcoming 2027)

Martin Higgins (Edmonton) & Mackenzie Frost Common (Alberta), Tax Differentials and Team Performance Under the NHL Salary Cap (2026)

Steven Utke (Connecticut), Large Company Loses Billions of Dollars, Pays No Income Tax! Understanding the Ongoing Scandal (2026)