QDMTT: How Qualified Domestic Minimum Top-up Tax Shifts Pillar Two Top-up Tax Locally (2025)

Quick Answer: QDMTT

A QDMTT (Qualified Domestic Minimum Top-up Tax) is a Pillar Two-aligned domestic top-up tax designed to be functionally equivalent to the OECD GloBE rules and to collect the incremental tax up to 15% in the source (host) jurisdiction. In the GloBE computation, the QDMTT payable reduces the jurisdictional top-up tax through the Article 5.2.3 Jurisdictional Top-up Tax formula (which subtracts “Domestic Top-up Tax,” defined as the amount payable under a QDMTT for the year). If the domestic regime is not treated as a QDMTT, an MNE can face either (i) residual foreign top-up tax (IIR/UTPR) and/or (ii) duplicative complexity, depending on whether and how the domestic minimum tax is treated under the Covered Taxes rules.

What is a QDMTT (and why it exists)

A Qualified Domestic Minimum Top-up Tax (QDMTT) is the “host country version” of Pillar Two: a domestic tax that aims to replicate the GloBE jurisdictional ETR mechanics and charge a top-up when the jurisdiction’s effective tax rate is below 15%.

Why countries are implementing QDMTTs

QDMTTs are largely about taxing rights and cash tax location:

• Without a QDMTT, low-taxed profits in a jurisdiction can generate a top-up tax collected by another country under the Income Inclusion Rule (IIR)—typically the parent’s jurisdiction—and potentially backed up by the Undertaxed Profits Rule (UTPR).
• With a QDMTT, the host jurisdiction collects the incremental tax first, and the GloBE calculation reduces the jurisdictional top-up tax by the domestic amount payable under the QDMTT (OECD Model Rules, Art. 5.2.3; OECD Consolidated Commentary (2025), discussion of Domestic Top-up Tax mechanics).

This is why, in practice, QDMTTs often change the question from “Will there be a Pillar Two top-up tax?” to “Where will the top-up tax be paid—locally, at the parent, or via UTPR allocations?”

How QDMTT “priority” works versus IIR and UTPR

Practitioners often describe QDMTT as having “priority.” Technically, the “priority” is achieved through the ordering embedded in the GloBE computation, not through a standalone priority clause.

The practical ordering (what happens in the math)

At a high level:

1. Compute the jurisdictional ETR, Excess Profits, and Top-up Tax % under the GloBE rules.
2. Compute the Jurisdictional Top-up Tax under Article 5.2.3, which (among other items) subtracts Domestic Top-up Tax—defined as the amount payable under a QDMTT for the same fiscal year.
3. Only the residual top-up tax (if any) is then available to be collected under IIR and, if still not picked up, via UTPR allocations.

Why “payable” matters

The OECD guidance distinguishes between amounts that exist in a statute and amounts that are actually payable for the year. In practice, regimes and fact patterns can produce an amount that is:

• accrued in accounting,
• assessed by the tax authority,
• under dispute or not collectible,
• ultimately payable.

As a practical rule of thumb: “payable” often follows the year’s accrual/assessment mechanics, but OECD guidance flags that amounts that are subject to challenge or deemed not assessable/collectible can be treated as not payable for these purposes (see OECD July 2023 guidance’s discussion linking safe harbour eligibility to “QDMTT payable” under Art. 5.2.3).

No negative top-up tax (no refund mechanism in GloBE)

Even if the domestic system collects more than the GloBE-computed top-up tax, the GloBE mechanics do not create a negative jurisdictional top-up tax or a refund through the GloBE system (OECD Consolidated Commentary (2025), treatment of Domestic Top-up Tax mechanics and the floor at zero).

What makes a domestic minimum tax “qualified”

Not every domestic minimum tax is a QDMTT. The OECD frames qualification as functional equivalence (OECD Feb 2023 Agreed Administrative Guidance).

The two-part test: architecture + outcomes

A domestic regime is generally expected to be “qualified” when:

1. Architecture/design consistency: it determines excess profits and incremental tax using mechanisms that track GloBE’s core building blocks (GloBE income base logic, covered tax concepts, jurisdictional blending, SBIE-style exclusion, etc.).
2. Outcome consistency: it must not systematically produce an incremental liability that is lower than the GloBE outcome for that jurisdiction (OECD Feb 2023 Agreed Administrative Guidance).

In other words, “qualified” is not about copying the GloBE text line-by-line—it’s about reliably producing a GloBE-consistent result for in-scope MNEs.

One more qualification constraint: no “benefits” tied to the GloBE/QDMTT rules

In addition to architecture + outcomes, the OECD’s definition-level guidance highlights another high-level constraint: a QDMTT must be implemented and administered consistently with GloBE provided that the jurisdiction does not provide any benefits that are related to the GloBE Rules (OECD Feb 2023 Agreed Administrative Guidance, QDMTT definition commentary).

This matters in practice because it pushes jurisdictions away from designs that “give back” QDMTT through direct or indirect relief linked to the minimum-tax computation.

Scope expectations (who must be covered)

A QDMTT must, at minimum, operate correctly for in-scope groups (typically consolidated revenue ≥ €750m in at least 2 of the prior 4 years, under the GloBE scope framework). OECD guidance also contemplates that jurisdictions may choose to apply a domestic top-up tax more broadly (e.g., to smaller groups) without breaking qualification—provided the regime still functions appropriately for in-scope MNEs (OECD Feb 2023 Agreed Administrative Guidance).

QDMTT vs “regular” domestic minimum tax (DMT)

Many jurisdictions had minimum taxes before Pillar Two (or are introducing “minimum tax” concepts that are not GloBE-aligned). Those taxes can be valuable domestically, but they can fail the QDMTT test.

The QDMTT safe harbour: what it is and when it helps

The QDMTT safe harbour is intended to reduce duplicated work. If the safe harbour applies, the MNE can treat the jurisdiction’s GloBE top-up tax as deemed zero (OECD July 2023 Administrative Guidance).

What the safe harbour does (and doesn’t do)

• Does: allow a simplified outcome for the GloBE computation—top-up tax in that jurisdiction is deemed 0 when conditions are met.
• Doesn’t: eliminate the need to comply with the domestic QDMTT return/payment rules.

Critically, the OECD July 2023 guidance describes the QDMTT Safe Harbour as an election made by the Filing Constituent Entity (not an automatic switch).

The three safe harbour standards (high-level)

OECD July 2023 Administrative Guidance outlines safe harbour standards that, in practice, are usually summarized as:

How safe harbour changes your compliance footprint

Without the safe harbour, many groups end up effectively doing two computations for the same jurisdiction:

1. a local QDMTT computation to file and pay domestically, and
2. a full GloBE computation to support IIR/UTPR and the GloBE Information Return.

With the safe harbour, you still do (1), but (2) can often be simplified for that jurisdiction (subject to each implementing jurisdiction’s mechanics and the OECD guidance framework).

Where QDMTTs are in effect (practical snapshot as of 2025)

A single “official global list” is not embedded in the OECD Model Rules. However, there is now an OECD-maintained reference point for transitional qualified status outcomes.

OECD Central Record (transitional qualified status + safe harbour status)

The OECD publishes a Central Record of Legislation with Transitional Qualified Status, including a table for “Qualified Domestic Minimum Top-up Tax Rules and QDMTT Safe Harbours.” The OECD page notes the central record is current as at 18 August 2025 and is updated periodically after jurisdictions complete the transitional qualification mechanism process.

Two practical takeaways:

• Use it as the closest thing to an “official” reference for transitional qualified status and safe-harbour table outcomes.
• Don’t misread omissions: the OECD explicitly notes that a jurisdiction not appearing in the central record does not mean its rules are not qualified—only that the transitional process may not have been initiated or completed at the publication date.

A tiered way to track “status” in practice

Because “status” has multiple layers, a practical hierarchy is:

1. OECD Central Record (transitional qualified status + QDMTT Safe Harbour table outcomes),
2. Local government / tax authority guidance (effective dates, filing/payment mechanics),
3. Country lists used for specific domestic purposes (e.g., UK HMRC recognition lists).

Selected effective-date groupings (illustrative)

For practical purposes, many practitioners also reference the UK HMRC manual list of qualifying domestic top-up taxes and effective dates (noting HMRC is a UK recognition list, and “effective” dates are typically expressed as applicable for fiscal years beginning on/after the listed date).

Based on HMRC’s running list (accessed Dec 2025):

“Implemented” vs “qualified” vs “safe-harbour eligible”

These terms are often conflated:

• Implemented: the law exists domestically.
• Qualified (QDMTT): the regime is treated as functionally equivalent for Pillar Two purposes (OECD guidance).
• Safe-harbour eligible: the regime meets additional safe harbour standards and is recognized through the relevant processes contemplated in OECD July 2023 guidance.

Practically, your risk assessment should track all three dimensions—especially in year 1–2 of adoption in each jurisdiction.

Strategic implications for MNEs: planning, incentives, and cash tax geography

QDMTT is not just another filing. It changes where incremental tax is paid and therefore affects treasury, forecasting, transfer pricing operating models, and incentive strategy.

1) Cash tax moves from parent jurisdiction to host jurisdiction

Under IIR-only structures, low-taxed profits often generate top-up tax at the parent. With QDMTT, the same incremental tax can be collected locally.

This can affect:

• cash pooling and withholding considerations,
• local statutory effective tax rate and deferred tax positions,
• internal tax charge models between entities (who bears the cost of minimum tax).

2) Incentive regimes may deliver less value (or require redesign)

Many traditional incentives reduce local tax below 15% (holidays, free zones, preferential IP regimes). Under QDMTT, the benefit can be partially or fully offset by domestic top-up tax to reach the 15% minimum.

In some cases, jurisdictions respond by pivoting toward:

• incentives structured to be Pillar Two compatible (e.g., certain refundable credit designs), or
• non-tax subsidies.

The key point for practitioners: re-evaluate incentives using GloBE/QDMTT economics, not purely local ETR optics (OECD Feb 2023 Admin Guidance discusses the importance of outcomes not being systematically lower).

3) “Double-layer” risk is real—but narrower than many first-pass models

It’s true that a domestic minimum tax that is not treated as QDMTT can leave residual IIR/UTPR exposure.

But it is not technically reliable to assume “not QDMTT” automatically means “GloBE top-up is unchanged,” because a non-QDMTT domestic minimum tax may still be a Covered Tax (and therefore increase Adjusted Covered Taxes / ETR, reducing the GloBE top-up tax).

The double-layer risk is most acute in narrower fact patterns (e.g., the levy is not a Covered Tax for GloBE; base/timing differences mean it doesn’t raise ETR enough; or uncertainty/dispute mechanics prevent it from being treated as payable/included in the relevant way).

4) Increased importance of controversy governance

Because “QDMTT payable” matters, dispute outcomes and payment finality can affect both:

• the amount subtracted in the Jurisdictional Top-up Tax computation (Model Rules Art. 5.2.3), and
• safe harbour eligibility (OECD July 2023 Guidance).

Practical examples (with numbers)

Example 1: QDMTT fully eliminates foreign IIR/UTPR exposure (classic “priority” case)

Facts (Jurisdiction A, FY2025)

• GloBE Income (after adjustments): 100
• Covered Taxes: 10
• Jurisdictional ETR = 10 / 100 = 10%
• Minimum Rate = 15%
• SBIE: 0 (assume none for simplicity)

Step 1 — GloBE top-up tax before Domestic Top-up Tax subtraction

Top-up Tax %:

15% − 10% = 5%

Jurisdictional Top-up Tax (before subtracting Domestic Top-up Tax):

Excess Profits = 100 − 0 = 100
Top-up Tax = 5% × 100 = 5

Step 2 — Apply Domestic Top-up Tax (QDMTT payable) in the Art. 5.2.3 formula

Assume Jurisdiction A has a QDMTT and the amount payable for FY2025 is 5.

Residual Jurisdictional Top-up Tax = 5 − 5 = 0

Result

• Jurisdiction A collects 5 domestically.
• Under the GloBE computation, there is no residual top-up tax for IIR/UTPR for that jurisdiction (subject to the QDMTT being treated as payable and “qualified”).

Example 2: Domestic minimum tax is not “qualified” → outcomes depend on Covered Taxes treatment

The risk with “not QDMTT” is often modeled too aggressively. Here are two common patterns:

Case A — Non-QDMTT domestic minimum tax is still a Covered Tax → GloBE top-up may fall (even to zero)

Facts (Jurisdiction B, FY2025)

• GloBE Income: 100
• “Regular” Covered Taxes (e.g., corporate income tax): 10
• A domestic minimum tax of 5 is imposed, and (critically) it is a tax recorded with respect to income or profits so it can be a Covered Tax under the Article 4.2 definition (even if it is not treated as QDMTT payable under Art. 5.2.3).

Illustrative impact

Adjusted Covered Taxes = 10 + 5 = 15
ETR = 15 / 100 = 15%
Top-up Tax % = 15% − 15% = 0%
GloBE top-up tax = 0

Outcome

• Jurisdiction B collects 5 domestically.
• Foreign IIR/UTPR top-up tax may be 0, because the domestic tax increased Covered Taxes and raised the GloBE ETR to 15%.

So what’s the Pillar Two problem here?
Typically: loss of QDMTT safe harbour simplifications, additional reconciliation/uncertainty work, and a higher risk that local design choices create differences vs GloBE in other years or other profiles—rather than an automatic “double cash tax” equal to the full GloBE top-up.

Case B — Domestic minimum tax is not a Covered Tax (or doesn’t raise ETR enough) → “domestic + foreign” layering becomes plausible

Facts (Jurisdiction B, FY2025)

• GloBE Income: 100
• Covered Taxes (as defined for GloBE): 10
• The jurisdiction imposes an additional domestic levy of 5, but assume this levy is not treated as a Covered Tax for GloBE purposes (e.g., it is not a tax “with respect to income or profits” within the Article 4.2 concept, or it is not recorded/treated in a way that brings it into Adjusted Covered Taxes for the year).
• Because it is not a QDMTT, it also does not reduce Jurisdictional Top-up Tax as “Domestic Top-up Tax” under Art. 5.2.3.

Illustrative combined burden (narrow-case illustration)

GloBE top-up tax (IIR/UTPR): 5
Domestic levy: 5
Potential total: 10

The practical takeaway is still that qualification analysis is not academic—but the “10” result is fact-pattern dependent and should not be used as the default assumption.

Example 3: QDMTT exceeds GloBE top-up tax — no negative top-up tax

Facts (Jurisdiction C, FY2025)

• GloBE Income: 200
• Covered Taxes: 26 → ETR = 13%
• Minimum Rate: 15%
• SBIE: 40

Step 1 — Compute GloBE top-up tax

ETR gap = 15% − 13% = 2%
Excess Profits = 200 − 40 = 160
GloBE Top-up Tax (pre-Domestic Top-up Tax) = 2% × 160 = 3.2

Step 2 — Assume domestic QDMTT payable is 4.0

If Jurisdiction C’s QDMTT computes 4.0 payable for FY2025:

Residual Top-up Tax = max(0, 3.2 − 4.0) = 0

Result

• The “excess” 0.8 does not create a negative top-up tax in the GloBE computation (OECD Consolidated Commentary (2025) on Domestic Top-up Tax mechanics and the floor at zero).
• For modeling, do not treat QDMTT as a refundable GloBE asset—treat it as a reduction capped at the jurisdictional top-up tax.

Compliance: a practical operating model for QDMTT + GloBE

For most groups, QDMTT increases the number of jurisdictions where Pillar Two is “real” locally (filing, payment, controversy). The best compliance models minimize duplication.

Step-by-step: what to build and control

1. Determine scope

   • Revenue threshold and whether the group is in-scope (typical Pillar Two threshold: €750m, per GloBE scope framework).
   • Identify excluded entities, permanent establishments, and local filing units.

2. Build jurisdiction-level Pillar Two data

   • financial accounting net income (consistent basis),
   • GloBE adjustments,
   • current and deferred covered taxes and attributes,
   • SBIE inputs (payroll, tangible assets),
   • intragroup eliminations / consolidation adjustments.

3. Compute and file QDMTT locally

   • understand local filing mechanics, deadlines, payment dates, penalties,
   • track whether amounts are payable vs disputed.

4. Compute residual GloBE (IIR/UTPR) and file the GIR

   • apply safe harbours where available (including the QDMTT Safe Harbour election where eligible),
   • complete reporting per the GloBE Information Return framework.

Common pitfalls (and how to avoid them)

Related topics and next steps

• Pillar Two overview and mechanics: /blog/pillar-two-guide
• Global minimum tax context and how it fits with transfer pricing: /blog/global-minimum-tax-guide
• UTPR (when QDMTT and IIR don’t fully eliminate exposure): /blog/utpr-guide
• Hub for Pillar Two + CbCR integration and readiness: /blog/pillar-two-cbcr-guide
• Deeper practical guides:
  • CbCR: /blog/cbcr-preparation-guide
  • Documentation hub: /blog/transfer-pricing-documentation-guide
  • Benchmarking (Pillar 1 / broader TP support): /blog/benchmarking-study-guide
• Glossary:
  • QDMTT definition: /glossary/qdmtt
  • Pillar Two definition: /glossary/pillar-two

FAQ: QDMTT (Qualified Domestic Minimum Top-up Tax)

1) What does QDMTT stand for?

QDMTT stands for Qualified Domestic Minimum Top-up Tax—a domestic tax intended to be treated as functionally equivalent to the OECD GloBE rules.

2) Why are countries introducing QDMTTs?

To collect the top-up tax locally (up to the 15% minimum) instead of allowing another jurisdiction to collect it under the IIR, with UTPR as the backstop.

3) How does QDMTT interact with IIR and UTPR?

Under the OECD Model Rules, the Jurisdictional Top-up Tax calculation (Art. 5.2.3) subtracts Domestic Top-up Tax, defined as the QDMTT payable for the year. This often reduces residual top-up tax for that jurisdiction to zero before IIR/UTPR applies.

4) What makes a domestic minimum tax “qualified”?

It must be functionally equivalent to GloBE in both design (architecture) and outcomes, it must not be structured in a way that produces outcomes systematically lower than GloBE, and it must not provide benefits related to the GloBE rules (OECD Feb 2023 Agreed Administrative Guidance).

5) What is the QDMTT safe harbour?

A mechanism under which an MNE may treat a jurisdiction’s GloBE top-up tax as deemed zero when that jurisdiction has a QDMTT meeting the safe harbour standards and the Filing Constituent Entity makes the election (OECD July 2023 Administrative Guidance).

6) Does paying a domestic minimum tax always eliminate foreign Pillar Two tax?

No. Only a tax treated as QDMTT payable for the year (and “qualified” under the OECD framework) will generally reduce residual top-up tax via Art. 5.2.3. Also, a non-QDMTT domestic minimum tax may still affect GloBE results if it is included in Covered Taxes—so you need to model both the Art. 5.2.3 and Article 4.2 pathways.

7) Can QDMTT create a negative top-up tax or refund under GloBE?

No. In the GloBE computation, the Domestic Top-up Tax subtraction is effectively capped so the jurisdictional top-up tax does not go below zero (OECD Consolidated Commentary (2025) on Art. 5.2.3 mechanics).

8) How do disputes affect QDMTT crediting and safe harbour?

If the amount is not treated as payable (e.g., under challenge or deemed not assessable/collectible), it can reduce the availability of the Domestic Top-up Tax subtraction and can also block reliance on the QDMTT safe harbour election (OECD July 2023 Guidance; OECD Consolidated Commentary (2025)).

9) Where can I find a practical list of countries with QDMTTs and effective dates?

Two useful references (for different purposes) are:

• The OECD Central Record of Legislation with Transitional Qualified Status (closest thing to an “official” transitional-status tracker).
• The UK HMRC manual list of qualifying domestic top-up taxes and effective dates (UK recognition list): https://www.gov.uk/hmrc-internal-manuals/multinational-top-up-tax-and-domestic-top-up-tax/mtt09970

10) What’s the most efficient way to manage QDMTT compliance across multiple countries?

Centralize Pillar Two data (aligned to the UPE consolidation standard where feasible), compute local QDMTT and residual GloBE from the same dataset, and integrate GIR reporting controls using the OECD GloBE Information Return framework (OECD GIR, Jan 2025).