
South Korea to Apply a QDMTT from January 1, 2026
South Koreas 2025 Tax Reform Proposal (announced on July 31, 2025), provides that a QDMTT will be applied from January 1, 2026.
Intragroup financing arrangements are subject to special rules under Article 3.2.7 of the OECD Model Rules.
This is a common area of tax planning for MNE’s and without specific provisions, they could adjust the effective tax rate (ETR) of jurisdictions by structuring financing operations.
For instance, they could reduce Pillar Two GloBE income in jurisdictions that were just below the minimum rate (therefore increasing the ETR and potentially resulting in the jurisdictional ETR being over 15%) whilst increasing Pillar Two GloBE income in jurisdictions that had significant ETR capacity (ie where the jurisdictional ETR is significantly above 15% anyway).
A typical arrangement that would be targeted by this is a hybrid financing arrangement such as:
MNE Co 1 is resident in a low-tax jurisdiction. It borrows money from MNE Co 2 by way of a debt instrument 2. MNE Co 2 is a member of the same MNE group and is resident in a high tax jurisdiction.
The debt instrument is treated as equity for tax purposes and debt for financial accounting purposes in both jurisdictions.
As such, interest payments by MNE Co 1 would reduce Pillar Two GloBE income (and therefore increase the Pillar Two GloBE ETR) without any reduction in the domestic tax liability (as dividends are generally not tax-deductible).
By contrast, the interest receipt would increase Pillar Two GloBE income in MNE Co 2 (reducing its Pillar Two GloBE ETR) without a corresponding increase in its domestic taxable income.
Therefore, as an anti-avoidance measure, the Pillar Two GloBE income or loss of a low-taxed entity does not include any expenses of an intra-group financing arrangement that can be expected to increase the expenses of a low-taxed entity without a corresponding increase in the taxable income of a high taxed entity.
A low-taxed entity is generally an entity in a jurisdiction where the Pillar Two GloBE ETR is less than 15%.
There is no increase in the taxable income of a high-taxed entity if the income qualifies for an exclusion or deduction ie just because the high-taxed entity is allocated the income for local tax purposes does not mean this requirement is met, if it qualified for deduction or credits that offset it.
This could be the case if, for example, it has brought forward interest expenses sufficient to offset interest received from the low-taxed entity.
Whether there is an intragroup financing arrangement in place is an objective test and is based on whether there is an arrangement between two or more members of an MNE group which results in a high taxed entity directly or indirectly providing credit or making an investment in a low taxed entity.
In addition, again using an objective test, the arrangement must be reasonably expected to reduce the Pillar Two GloBE income of a low taxed entity without increasing the taxable income of a high taxed entity over the duration of the agreement.
Profits from international shipping (eg profits derived from the transport of cargo or passengers by ships) as well as certain ancillary income are generally exempt for Pillar Two GloBE income purposes under Article 3.3 of the OECD Model Rules.
As this would have been included in the profits in the financial accounts, an adjustment to the Pillar Two GloBE income is required.
South Koreas 2025 Tax Reform Proposal (announced on July 31, 2025), provides that a QDMTT will be applied from January 1, 2026.
On July 24, 2025, the Luxembourg Government issued:
– a draft law to amend its Minimum Tax Law to provide for the January 2025 OECD Administrative Guidance and the EU DAC 9 GIR filing requirements: and
– a draft Regulation which includes the format of the GIR
On July 16, 2025, Kuwait updated its electronic registration portal to include Pillar 2 registration for in-scope groups.
The Pillar Two effective tax rate (ETR) calculation for investment entities is similar to the standard ETR calculation, however, there is an important twist in that the top-up tax is adjusted for minority interests. There is no adjustment for minority interests under the standard ETR calculation. In this article we look at the impact of this.
Foreign tax credits interact with the Pillar Two GloBE Rules in a number of ways. In this article we assess the key impact.
In most cases, a Qualifying Refundable Tax Credit will result in a higher Pillar Two effective tax rate than a non-qualifying tax credit. However, this is not always the case. We look at some examples in this article.
On July 9, 2025, ANAF Order 1.729/2025 was issued to nominate a single designated entity for QDMTT filing and payment purposes, if there are several constituent entities in Romania that are part of the same group.
On June 30, 2025, Japan issued its updated GloBE Information Return (GIR) to reflect the OECD GIR changes in January 2025.
The Executive Regulations were issued on June 29, 2025, in Ministerial Resolution No. 55 of 2025. The Regulations provide for the detailed rules for the application of the domestic minimum top-up tax from January 1, 2025.
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