Qualified Domestic Minimum Top-up Tax (QDMTT) — QDMTT (Qualified Domestic Minimum Top up Tax) is a domestic tax that a jurisdiction can introduce to collect top up tax on low taxed income of MNE constituent entities located in that jurisdiction.
QDMTT (Qualified Domestic Minimum Top-up Tax) is a domestic tax that a jurisdiction can introduce to collect top-up tax on low-taxed income of MNE constituent entities located in that jurisdiction. When a QDMTT is in place and meets qualification requirements, the domestic jurisdiction collects the top-up tax before the Income Inclusion Rule (IIR) or Undertaxed Profits Rule (UTPR) can apply.
QDMTT allows source jurisdictions to retain taxing rights over their own low-taxed profits rather than ceding that revenue to parent or UTPR jurisdictions.
OECD/Regulatory Reference
The QDMTT concept is addressed in the GloBE Model Rules (20 December 2021) and further detailed in Administrative Guidance released by the OECD/G20 Inclusive Framework (July 2023 and subsequent releases).
Article 10.1 of the GloBE Model Rules defines a Qualified Domestic Minimum Top-up Tax as a minimum tax included in the domestic law of a jurisdiction that:
Determines the Excess Profits of constituent entities located in that jurisdiction using a GloBE Income calculation or an equivalent
Operates to increase domestic tax liability to the Minimum Rate (15%)
Is implemented and administered consistently with the GloBE Rules and related guidance, provided that such jurisdiction does not provide any benefits that are related to such rules
The OECD has issued specific guidance on QDMTT qualification criteria and a QDMTT Safe Harbour (July 2023) that allows simplified compliance when a jurisdiction's QDMTT meets certain design standards.
In Practice
Rule Order Priority:
Priority
Mechanism
Collecting Jurisdiction
1st
QDMTT
Source jurisdiction (where low-taxed entity is located)
2nd
IIR
Parent jurisdiction
3rd
UTPR
Jurisdictions with substance (employees/assets)
QDMTT Design Requirements:
For a domestic minimum tax to qualify as a QDMTT, it generally must:
Use GloBE Income (or equivalent) as the tax base
Apply the 15% minimum rate
Follow GloBE-consistent covered tax calculations
Not provide any benefits related to the QDMTT rules (broader than just credits—includes any mechanism that would effectively reduce the rate below 15%)
QDMTT Safe Harbour: Per OECD Administrative Guidance (July 2023), if a jurisdiction's QDMTT meets peer-reviewed qualification standards, MNEs can elect to treat top-up tax for the jurisdiction as zero without performing full GloBE calculations. This is the "QDMTT Safe Harbour."
Important: Qualified QDMTT Top-up Tax is excluded from Covered Taxes under the GloBE Model Rules. This is different from a non-qualified domestic minimum tax, which typically remains in the Covered Taxes numerator if it otherwise meets the Covered Taxes definition.
QDMTT vs. Non-Qualified Domestic Minimum Tax:
Type
Treatment
IIR/UTPR Impact
Qualified QDMTT
Excluded from Covered Taxes; directly reduces top-up tax
IIR/UTPR reduced by QDMTT amount
Non-qualified domestic minimum tax
Included in Covered Taxes (ETR numerator)
IIR/UTPR still applies if ETR < 15%
Example
Scenario: MNE Group has a subsidiary in Jurisdiction Q
This €3.5 million would be collected by the parent jurisdiction under IIR.
With QDMTT:
text
Jurisdiction Q's QDMTT = 7% × 50 = €3.5 million
Jurisdiction Q collects the €3.5 million domestically. The IIR top-up tax is reduced to zero for this jurisdiction because the QDMTT has already brought the effective rate to 15%.
Result: Revenue stays in Jurisdiction Q rather than flowing to the parent jurisdiction.
(Note: This example is simplified and ignores SBIE, de minimis exclusion, and other GloBE adjustments.)
QDMTT Implementation Status
As of 2024–2025, many jurisdictions have enacted or are enacting QDMTTs:
Jurisdiction
Status
Notes
EU Member States
Permitted under EU Directive
Member States may elect to apply; not mandatory
UK
Enacted
Domestic Top-up Tax component of Pillar Two
Switzerland
Enacted from 1 Jan 2024
Via constitutional amendment
Japan
Enacted for FY from 1 Apr 2026
QDMTT and UTPR both from 2026
South Korea
Proposed for FY from 1 Jan 2026
In 2025 tax reform proposals
Qualification Matters: Not all domestic minimum taxes automatically qualify. If a jurisdiction's design deviates from GloBE rules (e.g., different income definition, carve-outs, or provides benefits related to the rules), the tax may be treated as a covered tax but not as a QDMTT—meaning IIR/UTPR can still apply.
To retain taxing rights over low-taxed income that would otherwise be collected by parent jurisdictions (under IIR) or other jurisdictions (under UTPR). Without a QDMTT, the revenue from top-up tax flows elsewhere.
Does a QDMTT increase tax for MNEs?
Not necessarily—it redirects where the top-up tax is collected. If a jurisdiction has low-taxed income, top-up tax is due regardless. The QDMTT determines whether the source jurisdiction or another jurisdiction collects it.
Can a QDMTT exceed the GloBE top-up amount?
The QDMTT can collect up to the amount needed to bring the jurisdiction's effective rate to 15%. The jurisdictional top-up tax computation subtracts the QDMTT amount (reducing IIR/UTPR to zero for that jurisdiction if QDMTT covers it fully). Note that qualified QDMTT is excluded from Covered Taxes—it does not increase the ETR numerator.
What if a jurisdiction's QDMTT doesn't qualify?
The domestic tax will still be included in Covered Taxes when calculating the GloBE ETR (if it otherwise meets the Covered Taxes definition). However, if the ETR remains below 15%, the IIR or UTPR can still impose additional top-up tax. The domestic tax doesn't get the same priority treatment as a qualified QDMTT.
Is QDMTT mandatory for jurisdictions?
No—QDMTT is optional. Jurisdictions can choose not to implement one. However, without a QDMTT, any top-up tax on their low-taxed entities will be collected by other jurisdictions under IIR or UTPR.
How does QDMTT interact with tax incentives?
If a jurisdiction offers tax incentives that reduce the effective rate below 15%, a QDMTT will claw back the benefit up to 15%. This can reduce the value of incentives but ensures the jurisdiction (not foreign jurisdictions) collects any minimum tax due.