What question did this study set out to answer?

The research aims to evaluate the limitations of the substance-based income exclusion under Pillar Two and propose improvements.

March 25, 2026Bulletin for international taxation0 citations

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Pillar Two and the Tax Policy Challenges of the Substance-Based Income Exclusion

RTRamon Tomazela

Key Points

The research aims to evaluate the limitations of the substance-based income exclusion under Pillar Two and propose improvements.
Critically analyze the substance-based income exclusion framework
Identify allocative distortions and biases in the current formula
Suggest alternative approaches for determining routine returns
The substance-based income exclusion exhibits significant conceptual shortcomings
The current formula leads to allocative distortions favoring certain business models
Proposed alternatives may better reflect economic realities of modern multinational activities

Abstract

This article critically examines the substance-based income exclusion (SBIE) under Pillar Two, highlighting its conceptual shortcomings, allocative distortions and bias toward tangible-intensive business models. It argues that the current formula inadequately reflects economic reality and proposes alternative approaches for determining routine returns consistent with modern multinational activities.

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Cite This Study

Ramon Tomazela (Mon,) studied this question.

synapsesocial.com/papers/69c37b54b34aaaeb1a67da6d https://doi.org/https://doi.org/10.59403/1pjarjk

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