Jurisdictions are free to introduce QDMTTs or not.
They are taken into account when calculating jurisdictional top-up tax under Article 5.2.3 of the OECD Model Rules, as jurisdictional top-up tax is calculated as:
Top-up tax % * excess profits + additional top-up tax-QDMTT
They therefore operate as a pound-for-pound reduction in any top-up tax liability charged by another country under either the IIR or the UTPR and are part of the final stage in the top-up tax calculation. If the amount levied under a QDMTT exceeds the amount of top-up tax payable there is no refund or credit available.
Whilst jurisdictions are not required to implement a QDMTT there is a clear incentive to do so.
This is because a QDMTT would ensure that any additional tax on economic activities in a jurisdiction that results from the Pillar Two minimum tax framework is to the benefit of the domestic jurisdiction.
In other words, businesses would in most cases pay the same level of tax on their profits whether there was a QDMTT or not, but rather than allow another country to collect that tax, a QDMTT would ensure the tax is paid to the domestic government.
If there was no QDMTT, the GloBE rules would mean that low-taxed profits would be topped up in foreign jurisdictions.
There would also be a simplification benefit for MNEs headquartered in a jurisdiction that would otherwise, be subject to the UTPR on their profits.
This would require MNEs to report tax liabilities to multiple jurisdictions and would inherently lead to an increased risk of disputes and could increase compliance costs through the MNE having to deal with audits from a number of different tax administrations.
A qualifying domestic top-up tax is defined in Article 10 of the OECD Model Rules as a minimum top-up tax included in domestic law that:
Given the clear benefits for jurisdictions in implementing a QDMTT, many have either already expressed a desire to do so, or have issued legislation.
Of the legislation released to date, a QDMTT is included by:
| Country | QDMTT?(Enacted/Draft) | Effective Date: |
|---|---|---|
| UK | Yes – Enacted | Accounting periods beginning on or after December 31, 2023 |
| Switzerland | Yes – Enacted | Accounting periods beginning on or after January 1, 2024 |
| The Netherlands | Yes – Enacted | Accounting periods beginning from December 31, 2023 |
| Sweden | Yes – Enacted | Accounting periods beginning after December 31, 2023 |
| Germany | Yes – Enacted | Accounting periods beginning after December 30, 2023 |
| Liechtenstein | Yes – Enacted | Accounting periods beginning on or after January 1, 2024 |
| Ireland | Yes – Enacted | – |
| Norway | Yes – Enacted | Accounting periods beginning on or after January 1, 2024 |
| Japan | No | – |
| South Korea | No | – |
| New Zealand | No | – |
| Denmark | Yes – Enacted | Accounting periods beginning on or after December 31, 2023 |
| Czech Republic | Yes – Enacted | Accounting periods beginning on or after December 31, 2023 |
| Austria | Yes – Enacted | Accounting periods beginning on or after December 31, 2023 |
| Belgium | Yes – Enacted | Accounting periods beginning on or after December 31, 2023 |
| Brazil | Yes – Enacted | Accounting periods beginning on or after January 1, 2025 |
| Bulgaria | Yes – Enacted | Accounting periods beginning on or after December 31, 2023 |
| Canada | Yes – Enacted | Accounting periods beginning on or after December 31, 2023 |
| Croatia | Yes – Enacted | Accounting periods beginning on or after December 31, 2023 |
| Finland | Yes – Enacted | Accounting periods beginning on or after December 31, 2023 |
| France | Yes – Enacted | Accounting periods beginning on or after December 31, 2023 |
| Greece | Yes – Enacted | Accounting periods beginning on or after December 31, 2023 |
| Hungary | Yes – Enacted | Accounting periods beginning on or after December 31, 2023 |
| Italy | Yes – Enacted | Accounting periods beginning on or after December 31, 2023 |
| Luxembourg | Yes – Enacted | Accounting periods beginning on or after December 31, 2023 |
| Malaysia | Yes – Enacted | Accounting periods beginning on or after January 1, 2025 |
| Romania | Yes – Enacted | Accounting periods beginning on or after December 31, 2023 |
| Slovakia | Yes – Enacted | Accounting periods beginning on or after December 31, 2023 |
| Slovenia | Yes – Enacted | Accounting periods beginning on or after December 31, 2023 |
| Turkey | Yes – Enacted | Accounting periods beginning on or after December 31, 2023 |
| Vietnam | Yes – Enacted | Accounting periods beginning on or after January 1, 2024 |
It should also be noted that the OECD Report on Tax Incentives and Pillar Two, recommends jurisdictions look at implementing a QDMTT whilst they undertake an assessment of tax incentives that they offer to in-scope MNEs.
See our: QDMTT: Legislative Tracker for detailed analysis of the design of QDMTTs in domestic legislation.
The OECD Administrative Guidance (as supplemented by the Second Set of OECD Administrative Guidance, issued in July 2023) provides details on which aspects of the GloBE Rules need to be reflected in the QDMTT regime and which aspects don’t.
In order to be a qualified domestic minimum top-up tax (QDMTT), a domestic minimum tax is generally required to follow the GloBE rules so that the calculation of the ETR and top-up tax is substantially the same. An MNE should be able to use the same data points for calculating its minimum tax liability that it uses for calculating its GloBE tax liability.
One option would be to just apply all of the GloBE rules with changes for the income inclusion rule (IIR) and under-taxed payments rule (UTPR) (as the IIR and UTPR mainly apply to the income of foreign constituent entities, whereas a QDMTT applies to domestic constituent entities).
However, it is beneficial to adapt the design of the QDMTT to reflect the domestic tax regime as otherwise this could exacerbate the complexity of a QDMTT and include provisions that aren’t even relevant to the jurisdiction (eg the stock-based compensation election would not be relevant if the jurisdiction did not allow companies to deduct the value of stock-based compensation based on the market value of the stock).
See: Designing a Qualified Domestic Minimum Top-Up Tax (QDMTT)
One key difference between a QDMTT and the standard Global Minimum Tax (eg the IIR and UTPR) is that CFC taxes are not included in the QDMTT ETR but they are included in the GloBE ETR. This could therefore lead to a lower QDMTT ETR and higher top-up tax.
The reason CFC taxes are excluded from the QDMTT ETR is to avoid a ‘feedback loop’ where the QDMTT is creditable in the parent jurisdiction. For more information, including a worked example of the feedback loop, see Treatment of CFC Taxes: QDMTTs vs GloBE Rules.
The Second Set of OECD Administrative Guidance also excludes tax of an owner of a Hybrid Entity that is allocated to the Hybrid Entity under Article 4.3.2(d) of the OECD Model Rules.
In addition, withholding tax and other taxes (including net basis taxes) incurred on dividends received from another constituent entity are allocated to the distributing company under Article 4.3.2(e) of the OECD Model Rules. However, for QDMTT purposes only withholding taxes are allocated to the distributing entity.
Another consideration is whether there should be an exemption for a QDMTT during the initial phase.
The New Zealand Pillar Two Consultation for instance provided that if an MNE group is headquartered in New Zealand, a QDMTT would not apply to it during an initial phase.
That is because any undertaxed New Zealand profits would not be subject to any other country’s UTPR or IIR during the period.
If the group is not headquartered in New Zealand, another country’s IIR could apply, so the rationale for a QDMTT (to allow New Zealand priority in collecting top-up tax on low tax New Zealand profits) would potentially still apply. The Second Set of OECD Administrative Guidance provides jurisdictions with three options regarding the temporary UTPR exclusion in their QDMTT legislation.
This is because the substance-based income exclusion is taken into account in the formula above when calculating excess profits.
This is easier to explain by using an example.
Domestic Tax Position
Let’s assume a country levies a domestic top-up tax.
Income in the jurisdiction is 1,000,000 euros.
Adjusted covered tax is calculated under the domestic implementation of the GloBE rules as 100,000 euros. There is therefore an ETR of 10%.
The Substance-Based Income Exclusion is 200,000 euros.
Under the domestic top-up tax excess profits are 800,000 euros (1,000,000 – 200,000).
Domestic top up tax is therefore 5% (15%-10%) * 800,000 = 40,000 euros.
The total tax is 140,000 euros.
If the Domestic Top-Up Tax is a QDMTT
In this case covered tax is 100,000 euros. The top-up tax calculation is:
5% * 800,000 = 40,000 – 40,000 (QDMTT) = 0
Treating the domestic top-up tax as a QDMTT eliminates any top-up tax under the GloBE rules.
If the Domestic Top-Up Tax isn’t a QDMTT
The position is different if the domestic top-up tax isn’t a QDMTT, as the domestic top-up tax is simply added to covered taxes.
As such, covered taxes would 140,000 euros and income would be 1,000,000 euros. The GloBE ETR
would then be 14%.
The GloBE top-up tax calculation would be:
800,000 * 1% (15%-14%) = 8,000 euros.
This illustrates that if a domestic minimum tax doesn’t meet the requirement to be a QDMTT the tax rate would need to be higher to fully cover the top-up tax which would be charged under the IIR or UTPR.
In this case, the jurisdiction applied a minimum domestic tax of 15% but due to the substance-based income exclusion, this did not fully cover the top-up tax liability.
The rate would therefore need to be above 15% to fully offset any top-up tax under the GloBE rules.
The Second Set of OECD Administrative Guidance includes a QDMTT Safe harbour. The QDMTT Safe Harbour excludes the application of the GloBE Rules in other jurisdictions by deeming the Top-up Tax payable under the GloBE Rules to be nil where top-up tax is levied under a QDMTT. The MNE Group therefore only needs to undertake one calculation.
A qualifying domestic top-up tax is defined in Article 10 of the OECD Model Rules as a minimum top-up tax included in domestic law that:
A QDMTT is a Qualified Domestic Minimum Top-Up Tax as defined in Article 10 of the OECD Model Rules.
The QDMTT is the final stage of the top-up tax calculation. Therefore the domestic tax paid under the QDMTT reduces any Pillar Two top-up tax.
A QDMTT would be enacted in domestic law of individual jurisdictions. There would also need to be separate legislation to implement the Pillar Two GloBE Rules.
It depends. In order to be a QDMTT a domestic top-up tax would need to use the same approach as the general Pillar Two calculation. However, differences in accounting standards between the UPE and the domestic entity could still result in top-up tax after the offset of the QDMTT.
On March 27, 2025, Law No. 22 of 2024 was published in Qatar’s Official Gazette. This implements the Pillar Two Income Inclusion Rule and a Domestic Minimum Top- Up Tax from January 1, 2025.
On March 27, 2025, Bulgaria’s 2025 State Budget Law (the ‘2025 Budget Law’) was published in the Official Gazette. This includes a number of changes to the Corporate Income Tax Law to amend the Global Minimum Tax provisions from January 1, 2024.
Insurance Investment Entities are subject to special treatment under the Pillar Two GloBE Rules. Read our analysis of the key provisions.
On March 20, 2025, the Swedish Ministry of Finance issued a draft law to amend the Global Minimum Tax Act. The draft law is open for consultation until May 26, 2025. The purpose of the draft law is to implement the provisions of the June 2024 OECD Administrative Guidance into domestic law.
On March 18, 2025, the government approved a draft bill on the amendment of Liechtenstein’s Global Minimum Tax Act (‘the bill’). The bill is intended to implement domestically the OECD provisions for the exchange of information in the GloBE Information Return (GIR) under the multilateral agreement between competent authorities on the exchange of GloBE information (GIR MCAA).
On March 6, 2025 a Decree of the Italian Ministry of Finance on Notification Requirements for Global Minimum Tax purposes was published in the Official Gazette. This provides more details on the double filing relief notification under Article 51(4) of Legislative Decree December 27, 2023, no. 209 (the Global Minimum Tax Law).
The Pillar Two Rules include specific provisions for tax transparent entities to avoid artificially low effective tax rates and significant top-up tax, particularly for tax transparent UPEs.
Centralized HR/payroll companies are frequently used by MNE groups but raise specific issues in relation to the Pillar Two GloBE Rules. In particular, the impact of using a centralized function and the nature of recharges could have an impact on the substance-based income exclusion of group entities.
Jurisdictions that apply a territorial basis do not tax foreign source income. This raises some interesting issues in the application of the Pillar 2 rules.
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