The treatment under the Pillar Two GloBE rules depends on whether there is an increase or decrease in the covered taxes and the amount of the adjustment.
Prior year increases in covered taxes are treated as an adjustment to the current year’s covered taxes under Article 4.6.1 of the OECD Model Rules.
Prior year decreases in covered taxes require a recalculation of the ETR and top-up tax in the previous year that the adjustment relates to. However, where a reduction is less than 1 million euros the MNE can elect for this to be adjusted in the current year.
The carryback of a local tax loss that gave rise to a refund of tax or other reduction in tax payable in the previous year would also be treated as a decrease in covered taxes.
However, there are special provisions for deferred tax that apply to loss carrybacks, for more information, see Deferred Tax.
These rules mirror the treatment for prior year adjustments to Pillar Two GloBE income and ensure that both the income and tax are aligned in the same fiscal year for the ETR calculation.
A change in domestic tax rates is not taken into account in the current year but could have deferred tax implications.
Where there is a reduction to the domestic tax rate below the 15% global minimum rate, deferred tax in a previous year may need to be recomputed under Article 4.6.2 of the OECD Model Rules.
For instance, if a deferred tax liability of 1 million euros is created in year 1 at a corporate income tax rate of 20%, this would result in adjusted covered tax of 200,000 euros. In year 2, the domestic tax rate is reduced to 10%.
The deferred tax liability in year 1 would need to be recomputed based on the 10% rate, with the adjusted covered tax being 100,000 euros. Additional top-up tax of 100,000 euros would therefore be due.
In this case, the amount is not material and would be due in year 2. If it was material, the ETR and top-up tax in year 1 would be amended.
Where there is an increase in the domestic tax rate, this could require an adjustment to the deferred tax expense in a previous year under Article 4.6.3 of the OECD Model Rules. In general, an increase in the rate that applies to a deferred tax liability is disregarded until the liability is unwound and the tax is paid.
The additional tax payable is then treated as an increase in covered taxes in the previous year.
Just as for deferred tax that is not unwound, a recapture rule applies to a current tax expense that is claimed as adjusted covered tax and is not paid under Article 4.6.4 of the OECD Model Rules. This applies where the unpaid tax is more than 1 million euros.
Unlike deferred tax, a three-year recapture rule applies (it is five-years for deferred tax).
On 18 September 2026, Brazil issued IN RFB No. 2,342/2026 to introduce a new framework for the treatment of substance-based tax incentives under its Pillar Two rules.
On 15 September 2026, the Dutch government presented a bill that would introduce four new Pillar Two safe harbours, extend the Transitional Country-by-Country Reporting Safe Harbour and amend the treatment of certain 52- and 53-week accounting periods.
On September 11, 2026, the OECD released a package of guidance and implementation materials that provides for the exclusion of Explicitly Conditional Taxes from Covered Taxes, clarifies the treatment of mismatched fiscal periods under the Qualified Domestic Minimum Top-up Tax Safe Harbour, updates the GloBE Information Return and establishes the detailed framework for full legislative reviews of domestic minimum tax rules.
Uruguay’s presidential decree dated 31 August 2026 replaces the conditional QDMTT payment waiver in Decree No. 325/025 with a compensation mechanism. Article 1 requires in-scope constituent entities allocated QDMTT in Uruguay to comply with its QDMTT obligations and pay the tax; article 7 repeals the earlier decree.
Qatar has published six decisions dealing with currency conversion, simplified reporting, the Transitional CbCR Safe Harbour, non-material constituent entities, designated local entities and registration.
The Slovak Government has approved draft legislation that would make significant changes to Slovakia’s qualified domestic minimum top-up tax regime. The proposals would implement the OECD’s new Substance-Based Tax Incentives Safe Harbour, extend the Transitional CbCR Safe Harbour and introduce rules preserving Pillar Two filing and payment obligations where a Slovak taxpayer ceases to exist without a legal successor.
Cyprus has opened a public consultation on amendments to its Pillar Two legislation intended to address observations from the European Commission and align the domestic rules more closely with OECD guidance. The consultation opened on 30 July 2026 and is scheduled to close on 5 September 2026.
On August 7, 2026, Germany published a regulation that gives domestic legal effect to a jurisdiction-by-jurisdiction list of qualifying Pillar Two jurisdictions.
On August 8, 2026, Mauritius issued its QDMTT regulations to implement its QDMTT.
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