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Borys Ulanenko
CEO of ArmsLength AI
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The global minimum tax (OECD/G20 Pillar Two, or GloBE) is a coordinated framework that ensures large multinational groups pay at least a 15% effective tax rate (ETR) in each jurisdiction. If a jurisdiction’s Pillar Two ETR is below 15%, the rules compute a top‑up tax. In common shorthand, top‑up is “collected” in the order QDMTT → IIR → UTPR—but it helps to remember the mechanics: a qualified domestic minimum top-up tax (QDMTT) is reflected as “Domestic Top-up Tax” in the jurisdictional top-up computation, reducing the residual amount (if any) that is then charged under the Income Inclusion Rule (IIR) and finally the Undertaxed Profits Rule (UTPR) backstop. The practical work is less about statutory rates and more about financial-accounting-based ETR modeling, safe harbour eligibility, and how incentives and deferred taxes flow through the GloBE mechanics. (See OECD GloBE Model Rules (2021) and OECD Consolidated Commentary (2025).)
The global minimum tax is the market shorthand for the OECD/G20 Pillar Two rules—formally the Global Anti-Base Erosion (GloBE) Model Rules—which impose a minimum 15% jurisdictional effective tax rate on large multinational enterprise (MNE) groups. The system is designed as a “common approach”: jurisdictions are not forced to adopt it, but if they do, they are expected to implement it in a coordinated way so other countries accept the outcomes. (See OECD GloBE Model Rules (2021) and OECD Administrative Guidance (Jan 2025) on administration.)
Pillar Two targets low-tax outcomes, not specific legal structures. It measures tax using a standardized approach based on financial accounting income, with specific adjustments, then compares the resulting jurisdictional ETR to the 15% floor. If the ETR is below 15%, Pillar Two calculates a top-up tax to bring the outcome up to the minimum. (See OECD GloBE Model Rules (2021).)
It is not:
If you need a foundational Pillar Two walkthrough (scope, rule order, reporting), start with our hub: /blog/pillar-two-guide and glossary term /glossary/pillar-two.
For most groups, the first modeling step is deciding whether Pillar Two applies at all and, if it does, in which jurisdictions the computations will be material.
In general, the GloBE Rules apply to constituent entities that are members of an MNE group whose Ultimate Parent Entity (UPE) has annual revenue of EUR 750 million or more in the UPE’s consolidated financial statements in at least 2 of the 4 fiscal years immediately preceding the tested fiscal year. If one or more of those fiscal years is not 12 months, the EUR 750m threshold is adjusted proportionally to match the length of the relevant fiscal year. (See OECD GloBE Model Rules (2021).)
| Filter | What it does (high level) | Why it matters in practice |
|---|---|---|
| Group revenue threshold (EUR 750m) | Determines whether the group is in scope (2-of-4 years test; pro-rated for short years) | Drives whether to build a full GloBE data model |
| Jurisdictional de minimis exclusion | At election, deems jurisdictional top-up tax to be zero if Average GloBE Revenue < EUR 10m and Average GloBE Income/Loss is a loss or < EUR 1m (average is computed over the current and two preceding fiscal years, with special rules) | Prevents spending disproportionate effort on immaterial jurisdictions |
| Substance-based income exclusion (SBIE) | Carves out a routine return based on payroll and tangible assets | Can materially reduce “excess profits” subject to top-up |
| Transitional safe harbours | Allows simplified outcomes (often using CbCR-based data) for early years (within the OECD-defined transition period) | Key for early-year compliance and provisioning |
The jurisdictional aggregation feature is the most counterintuitive shift for many tax teams: a “high-tax” entity can be blended with a “low-tax” entity in the same country, and vice versa. That is why Pillar Two provisioning often requires a jurisdiction-by-jurisdiction model, not an entity-based one. (See OECD GloBE Model Rules (2021).)
A common early mistake is using statutory tax rates (or cash taxes) as a proxy for Pillar Two ETR. The GloBE ETR uses Adjusted Covered Taxes and Net GloBE Income—and those can move in different directions than cash tax because of deferred tax rules, credit treatment, and accounting-to-tax adjustments.
At the center of Pillar Two is a standardized calculation of a jurisdiction’s effective tax rate. Conceptually it is simple; operationally it requires careful data mapping.
Most implementation projects treat Net GloBE Income as a controlled reconciliation from consolidated reporting to Pillar Two reporting:
Covered taxes are not simply “current tax expense.” Pillar Two has detailed rules for:
This is why early-year Pillar Two work frequently begins with a “tax provisioning lens” (tax expense accounts, deferred tax movements, uncertain tax positions) rather than a transfer pricing lens—although the two intersect through profitability, incentives, and substance.
| Metric | What it measures | Useful for | Not reliable for |
|---|---|---|---|
| Statutory corporate rate | Headline rate in local law | High-level screening | Determining Pillar Two exposure |
| Cash taxes paid | Cash outflows to authorities | Treasury / cash forecasts | Pillar Two ETR (timing differences) |
| Accounting ETR | Tax expense ÷ accounting profit | Financial reporting | Pillar Two ETR (definition differences) |
| Pillar Two ETR | Adjusted Covered Taxes ÷ Net GloBE Income | Top-up tax computation | Quick proxies without data mapping |
When a jurisdiction’s ETR is below 15%, the rules compute a top-up tax to bring the outcome to the minimum—after excluding a routine return through the substance-based income exclusion (SBIE).
In the full Model Rules computation, the jurisdictional top-up amount is then adjusted for items such as Additional Current Top-up Tax and reduced by Domestic Top-up Tax (i.e., QDMTT payable) to arrive at the Jurisdictional Top-up Tax charged under IIR/UTPR. (See OECD GloBE Model Rules (2021).)
This is the mechanical reason many “old” planning tools (statutory rate reductions, tax holidays, certain credits) can stop producing a group-wide benefit: they may simply convert into top-up tax somewhere else.
“Top-up tax” is a defined Pillar Two concept. For a plain-language definition and how it appears in Pillar Two reporting, see /glossary/top-up-tax.
In practice, collection is commonly summarized as a clear hierarchy:
One nuance that matters for legal mechanics and modeling: the Model Rules compute jurisdictional top-up tax by subtracting “Domestic Top-up Tax” (QDMTT payable) at the jurisdiction level, and only the residual amount (if any) is then charged under the IIR and/or allocated under the UTPR. (See OECD GloBE Model Rules (2021).)
This ordering is why groups are tracking which jurisdictions have a qualified QDMTT and/or IIR in force, not just whether a jurisdiction has “implemented Pillar Two” generally. (See OECD Consolidated Commentary (2025).)
From a workflow perspective, most tax teams get faster and more accurate results by modeling in this order: safe harbour eligibility → QDMTT impact → residual IIR → residual UTPR. It mirrors how top-up tax is often ultimately collected.
The Substance-Based Income Exclusion (SBIE) removes a formulaic “routine” return on substantive activities from the top-up tax base. It is computed from:
SBIE does not increase the tax numerator; it reduces the Excess Profits subject to top-up. (See OECD GloBE Model Rules (2021) and OECD Administrative Guidance (July 2023).)
SBIE can:
Transfer pricing still determines where profit lands. SBIE determines how much of that profit is treated as “excess” for Pillar Two purposes. In other words: TP drives the denominator; SBIE adjusts the top-up base.
If you’re revisiting profitability allocations, it’s worth cross-checking your transfer pricing documentation workflows (master file/local file) because Pillar Two models often raise similar data questions. See our documentation hub: /blog/transfer-pricing-documentation-guide.
For many groups, the fastest path to compliant outcomes is to use safe harbours where available, and reserve full GloBE computations for the jurisdictions that fail safe harbour tests.
The OECD designed a Transitional CbCR Safe Harbour to reduce early compliance burdens by allowing simplified determinations in jurisdictions that pass specified tests using CbCR and financial statement data. (See OECD Safe Harbours and Penalty Relief (2022) and OECD Administrative Guidance (Dec 2023).)
Two 2025-critical parameters are easy to miss:
(See OECD Safe Harbours and Penalty Relief (2022).)
Most practitioners analyze three tests (high-level labels used in practice):
Exact mechanics and thresholds depend on the OECD materials and local implementation, and the tests need careful data hygiene—especially for CbCR consistency.
CbCR data quality is a Pillar Two issue now. If your CbCR process isn’t “audit-ready,” start here: /blog/cbcr-preparation-guide, and then see the Pillar Two + CbCR hub: /blog/pillar-two-cbcr-guide.
A QDMTT is only protective if it is designed and recognized as “qualified” for Pillar Two purposes. OECD materials include a central record approach to track transitional qualified status for IIR/QDMTT/UTPR. (See OECD Consolidated Commentary (2025) and OECD Central Record web page.)
If you’re designing or evaluating domestic rules, read our dedicated guide: /blog/qdmtt-guide.
The UTPR is the backstop. The OECD’s Transitional UTPR Safe Harbour is set out in the July 2023 Administrative Guidance (and incorporated into the Consolidated Commentary). At a high level, it is designed to provide short, early-year relief in the UPE jurisdiction by deeming the UTPR Top-up Tax Amount for the UPE jurisdiction to be zero for fiscal years (i) that run no longer than 12 months, (ii) begin on or before 31 December 2025, and (iii) end before 31 December 2026, subject to conditions (including a nominal 20% rate test framework referenced in the Guidance). (See OECD Administrative Guidance (July 2023) and OECD Consolidated Commentary (2025).)
For operational planning, this translates into a simple rule: model UTPR, but do not assume it applies at full force in every early-year scenario—check transitional relief and local law.
For deeper UTPR mechanics, see: /blog/utpr-guide.
The OECD has explicitly analyzed how tax incentives interact with the global minimum tax and why some incentive designs simply transfer value from the investor to a top-up tax collector. (See OECD – Tax Incentives and the Global Minimum Corporate Tax (2022) and OECD Administrative Guidance (July 2023).)
| Incentive type | What it does locally | Typical Pillar Two effect | Practical mitigation to evaluate |
|---|---|---|---|
| Tax holiday / rate reduction | Lowers current tax | Lowers Adjusted Covered Taxes → ETR may drop below 15% → top-up tax | QDMTT design; shift to non-tax subsidy; align with SBIE |
| Non-refundable credit | Reduces tax payable | Often reduces covered taxes → can depress ETR | Consider credit redesign (subject to rules), or alternative support mechanisms |
| Refundable / “qualified refundable” style credit | Cash-like support | Can be treated more like income support than a tax reduction (fact-specific) | Validate classification under OECD guidance and local implementation |
| Accelerated depreciation | Timing benefit | Deferred tax mechanics and recapture can change whether “low ETR” persists | Model deferred tax attributes and recapture; avoid relying on timing alone |
Do not assume an incentive “still works” because the statutory rate is above 15%. Pillar Two can still generate top-up tax if covered taxes are reduced by credits, exemptions, losses, or timing differences—especially in the transition years.
By 2025, many jurisdictions have enacted Pillar Two rules, but practitioners need a more precise question:
Is the jurisdiction’s IIR/QDMTT/UTPR recognized as “qualified” (transitionally), and for which periods?
The OECD Consolidated Commentary (2025) includes an Annex B central record current as at 31 March 2025, and the OECD maintains an online Central Record updated beyond that cutoff. As of the OECD’s published status, the Central Record page is marked “current as at 18 August 2025”—so for a 2025 close you should still confirm whether any later update has been released and retain dated evidence for your provision/audit file. (See OECD Consolidated Commentary (2025) and OECD Central Record.)
The Annex B record (current as at 31 March 2025) lists numerous jurisdictions with transitional qualified status for IIR and/or QDMTT, including many EU Member States and others such as Canada, Japan, Korea, Norway, Switzerland, Türkiye, the United Kingdom, and Viet Nam (among others). (See OECD Consolidated Commentary (2025).)
| What to check | Source to use | Why it matters |
|---|---|---|
| “Qualified” IIR status | OECD Central Record / Annex B | Determines whether parent-level top-up applies predictably |
| “Qualified” QDMTT status | OECD Central Record / Annex B | Determines whether local top-up reduces IIR/UTPR exposure |
| Effective dates and transition | Local law + OECD record | Impacts year-1 provisioning and safe harbour availability |
For audit trails, save a dated export/screenshot of the OECD Central Record entry you relied on when finalizing provisions and GIR positions. “Qualified” status is time-bound and can be updated.
The OECD materials explicitly contemplated coexistence issues with US GILTI, noting that Pillar Two operates on a jurisdictional basis. (See OECD GloBE Model Rules (2021).)
From a practical planning perspective, US-parented groups typically model three pathways for low-tax outcomes:
Because early-year UTPR outcomes can be highly sensitive to transitional relief and local implementation, US-parented groups often prioritize:
Pillar Two compliance is ultimately a data engineering problem with tax law rules on top.
The OECD has published the GloBE Information Return (GIR) and related exchange tooling to standardize information collection and exchange. (See OECD GIR (Jan 2025) and OECD Admin Guidance (Jan 2025) on Articles 8.1.4/8.1.5.)
Most in-scope groups eventually converge on a Pillar Two dataset that includes:
Teams that build a single governed Pillar Two dataset (used for provision, compliance, and planning) typically reduce rework dramatically—especially when the first GIR filing cycle begins and local add-ons emerge.
The examples below are simplified to show the mechanics. In real filings, you must apply the specific definitions, timing rules, and local implementation details under the GloBE Model Rules, Commentary, and Administrative Guidance.
Facts (Jurisdiction L):
Step 1 — ETR
Step 2 — Top-up percentage
Step 3 — SBIE
2025 note (rates): For fiscal years beginning in 2025, the Model Rules’ transitional SBIE rates are 9.6% (payroll) and 7.6% (tangible assets). On the same inputs, SBIE would be (9.6% × 40) + (7.6% × 60) = 3.84 + 4.56 = 8.40. (See OECD GloBE Model Rules (2021).)
Step 4 — Excess profits
Step 5 — Top-up tax
Result: If Jurisdiction L does not have a qualified QDMTT that absorbs the shortfall, the residual top-up tax is generally collected under an IIR at the parent (or intermediate parent) level, subject to ownership mechanics. (See OECD GloBE Model Rules (2021).)
Facts (Jurisdiction M):
Assume Jurisdiction M has a Qualified Domestic Minimum Top-up Tax (QDMTT) and the group accrues QDMTT payable of 9.5.
Result: Under the Pillar Two mechanics, QDMTT payable is treated as Domestic Top-up Tax in the jurisdictional computation—so the domestic amount generally reduces the jurisdiction’s residual GloBE top-up requirement under IIR/UTPR, often to zero (with no “refund” if domestic top-up exceeds the computed GloBE top-up). (See OECD GloBE Model Rules (2021) and OECD Consolidated Commentary (2025).)
Facts (Jurisdiction N):
Step 1 — ETR using Adjusted Covered Taxes
If the credit reduces covered taxes for Pillar Two purposes (a common outcome for non-refundable credits, depending on design and guidance):
Step 2 — Top-up
Interpretation: The jurisdiction granted a 5-unit credit, but 3.5 units may reappear as Pillar Two top-up tax (reduced by any QDMTT payable and otherwise charged via IIR/UTPR depending on rule application). That is the “leakage” problem the OECD discusses in its incentives analysis. (See OECD – Tax Incentives and the Global Minimum Corporate Tax (2022) and OECD Administrative Guidance (July 2023).)
Use this as a “do we have the right moving parts?” review for provision and compliance planning:
If you’re working on global minimum tax planning or compliance, these are the most useful next reads:
The global minimum tax is the OECD/G20 Pillar Two (GloBE) framework that ensures large MNE groups pay at least a 15% effective tax rate in each jurisdiction, with top-up tax applied when the ETR is below 15%. (See OECD GloBE Model Rules (2021).)
In general, MNE groups are in scope if the UPE’s consolidated financial statements show EUR 750 million or more of annual revenue in at least 2 of the 4 fiscal years immediately preceding the tested year, with proportional adjustment for non‑12‑month fiscal years, subject to specific exclusions and safe harbours. (See OECD GloBE Model Rules (2021).)
At a high level, Jurisdictional ETR = Adjusted Covered Taxes ÷ Net GloBE Income, computed on a jurisdictional (not entity) basis. (See OECD GloBE Model Rules (2021).)
A jurisdiction triggers top-up tax when its Pillar Two ETR is below 15%. The rules then compute a top-up amount on excess profits (after SBIE and other adjustments) to bring the jurisdictional outcome up to 15%. (See OECD GloBE Model Rules (2021).)
It depends on which rules apply and which jurisdictions have enacted them. In practical order, top-up is typically absorbed first by a qualified QDMTT locally (as “Domestic Top-up Tax” in the jurisdictional computation), otherwise by a parent-level IIR, and finally by UTPR allocations if not fully collected. (See OECD GloBE Model Rules (2021) and OECD Consolidated Commentary (2025).)
A Qualified Domestic Minimum Top-up Tax (QDMTT) is a domestic minimum tax designed to align with Pillar Two so the low-tax jurisdiction collects the top-up itself. If qualified, it typically reduces or eliminates residual top-up under IIR/UTPR for that jurisdiction. (See OECD Consolidated Commentary (2025).)
SBIE is a carve-out that reduces the top-up tax base by a formulaic return on eligible payroll costs and eligible tangible assets, focusing Pillar Two on “excess” profits rather than routine returns. (See OECD Administrative Guidance (July 2023).)
Some are, but many incentives (tax holidays, non-refundable credits, preferential rates) can reduce Pillar Two covered taxes and create top-up tax leakage unless redesigned, offset by SBIE, or absorbed by a qualified QDMTT. (See OECD – Tax Incentives and the Global Minimum Corporate Tax (2022).)
Safe harbours are simplifications (notably the Transitional CbCR Safe Harbour) intended to reduce early-year compliance burden and, in qualifying cases, allow groups to avoid full GloBE computations for certain jurisdictions. For 2025 modeling, the transition period definition and the Simplified ETR “Transition Rate” (16% for FY beginning in 2025) are frequent pitfalls. (See OECD Safe Harbours and Penalty Relief (2022).)
Use the OECD’s Central Record of Legislation with Transitional Qualified Status (and Annex B in the 2025 Consolidated Commentary for a dated snapshot current as at 31 March 2025). Because qualification can be time-bound and updated (the Central Record page is marked “current as at 18 Aug 2025”), retain dated evidence for provisioning and audit support. (See OECD Central Record.)