A basic guide to understanding Pillar 2 GloBE minimum top-up tax rules 

As in-scope organisations* embark on a new Pillar 2 Global Anti-Base Erosion (GloBE) journey, having a clearer understanding of how jurisdictions will enact the global minimum 15% tax rule is vital. Notably, while Pillar 2 GloBE sets out model rules on what jurisdictions need to achieve, there is an element of flexibility in how each jurisdiction reaches goals set.  

Contrary to the GloBE rules, each jurisdiction enacting Pillar 2 has the choice to implement or not a qualifying domestic minimum top-up tax (QDMTT) that protects their rights to collect taxes up to 15% on domestic excess profits. Based on Pillar 2 GloBE model rules, jurisdictions can collect top-up tax from jurisdictions where corporate profits are taxed below 15% and who do not have a QDMTT in place. Therefore, QDMTT is a likely option for jurisdictions where the current corporate tax rate is below 15% and want to protect their tax-take. 

It’s essential to check whether a jurisdiction has enacted QDMTT because, as a jurisdictional blended calculation for each in-scope group, the Pillar 2 GloBE rules that apply locally will inform global tax payable. 

What qualifies as QDMTT? 

A QDMTT must follow the architecture of the GloBE rules using similar mechanisms and close enough in design so that an MNE can use the same data points for calculating the minimum tax liability that it uses for calculating its GloBE tax liability. A QDMTT should also provide similar outcomes so that the minimum tax reliably produces an incremental liability for top-up tax equivalent to the top-up tax liability that would have arisen under the GloBE rules. Variations in outcomes between the minimum tax and GloBE rules will not prevent that tax from being treated as a QDMTT if those variations consistently produce an equivalent or a greater incremental tax liability or do not systematically produce lower tax liability than expected under the GloBE rules. 

If a domestic top-up tax does not qualify as a QDMTT, it would be treated as a tax falling under the definition of covered tax as per the GloBE rules. 

Taking account of variations in calculations 

As mentioned, each jurisdiction enacting Pillar 2 GloBE rules has the choice to implement or not a QDMTT. Therefore, it is crucial for MNEs to check whether jurisdictions where constituent entities are located have enacted a QDMTT. If so, the ultimate parent entity (UPE), in principle, should proceed with the top-up tax calculation, considering the QDMTT calculation. In principle, the QDMTT should cancel the amount of top-up tax liability for the concerned jurisdiction.   

However, verifying how the jurisdiction has shaped the QDMTT is essential, as some provisions may deviate from the standard GloBE rules. These could include specific requirements on the scope, the charging provisions, the GloBE income or loss calculation, the adjusted covered taxes and computation of the top-up tax. For example, a QDMTT allows a jurisdiction to require income or loss to be computed using an authorised financial accounting standard that differs from the one used in the consolidated financial statements**. In such a case, adjustments should be made to prevent material competitive distortions related to an aggregate variation greater than €75m in a fiscal year. 

In addition, a QDMTT based on the whole amount of the jurisdictional top-up tax, irrespective of the ownership interests of constituent entities located in the QDMTT jurisdiction, may result in a greater tax charge than the tax charge that would arise for a parent entity under GloBE rules. To avoid such distortion, a QDMTT should apply only where all the domestic constituent entities in the jurisdiction are 100% owned by the UPE of a partially owned parent entity (POPE) for the entire fiscal year. 

Company-specific or regional factors organisations need to consider 

While a QDMTT offers some degree of customisation for jurisdictions, it should mirror the GloBE rules whereby certain entities are excluded from QDMTT scope. These include a government entity, international organisation, non-profit organisation, pension fund, investment fund that is a UPE or real estate investment vehicle that is a UPE. 

It is also recognised that the QDMTT should apply the same exceptions on calculations for joint ventures, joint-venture subsidiaries and minority-owned constituent entities. For example, the effective and top-up tax rates must be computed separately under a QDMTT to produce functionally equivalent outcomes. Also, specific considerations should apply under a QDMTT to the treatment of flow-through  permanent establishments or entities, or stateless entities. The same exclusion on international shipping income should apply to a QDMTT to be functionally equivalent to the GloBE Rules. 

From a regional or provincial perspective, jurisdictions with sub-national governmental authorities may choose to apply the QDMTT exclusively to constituent entities based on a sub-national jurisdictional blending. 

What are the filing obligations? 

With respect to filing obligations, a QDMTT must deliver outcomes similar to those achieved under the GloBE Rules, but there is flexibility in how jurisdictions accomplish this result. Using equivalent data points for QDMTT and GloBE rules will facilitate compliance for MNEs, as well as coordination and mutual trust between jurisdictions.   

A jurisdiction implementing a QDMTT will need to calibrate the filing deadline for the QDMTT to facilitate the correct reporting of top-up tax liability on the GloBE information return (GIR). 

The information return collected by the QDMTT jurisdiction may follow a different format from the GIR. However, as the QDMTT would use equivalent data points to those provided in the GIR, the QDMTT jurisdiction could choose to use the GIR or rely on the information included in the GIR. 

QDMTT and safe harbours 

A QDMTT safe harbour is intended to provide a practical solution to address the issue of at least two separate top-up tax calculations in respect of the same jurisdiction: the first calculation based on the QDMTT legislation in the jurisdiction and further calculations on the GloBE rules. The requirement to undertake separate top-up tax calculations for the same constituent entities under parallel rules will result in increased compliance costs for MNEs and administrative burdens for tax authorities. 

Where an MNE group qualifies for a QDMTT safe harbour, it excludes GloBE rules applicable in other jurisdictions by deeming the top-up tax payable to be zero. Therefore, a QDMTT safe harbour will allow the MNE group to undertake one computation, thereby avoiding the need to undertake a further calculation under those rules.  

However, a QDMTT must meet additional standards to qualify for the safe harbour. In particular, and given the ability of a QDMTT to depart from the design of the GloBE rules, a QDMTT that qualifies for a safe harbour must be computed using an eligible financial accounting standard, still meet the GloBE standards and is subject to an ongoing monitoring process.  

Finally, some issues may also arise during the transition years. For example, the fiscal year for which an MNE group is first subject to the GloBE rules may differ from their constituent entities for various reasons. For example, constituent entities located in different jurisdictions may become subject to GloBE rules in different years due to the applicability of transitional country-by-country reporting (CbCR)  safe harbours. In addition, the fiscal year for which an MNE group is first subject to the GloBE rules can differ from the fiscal year for which the MNE group is first subject to a QDMTT. 

Understanding how the QDMTT rules apply can not only reduce the burden of Pillar 2 GloBE reporting but also ensure that there is transparency and accuracy in computing global taxes payable. 


*with the principal aim of a minimum global 15% tax paid by organisations with in excess of €750m in revenue 

**OECD administrative guidance of February 2, 2023 (note 118.4)