OECD Publishes Model Rules for Implementation of Global Minimum Tax

published: 11.01.2022

The Pillar Two Model Rules (also referred to as the “Anti Global Base Erosion” or “GloBE” Rules), released on 20 December 2021, are part of the Two-Pillar Solution to address the tax challenges of the digitalization of the economy that was agreed by 137 member jurisdictions of the OECD/G20 Inclusive Framework on BEPS in October 2021.

These Model Rules are designed to ensure large multinational enterprises (MNEs) with a €750 million aggregate financial income threshold pay a minimum level of 15% tax on the income arising in each jurisdiction where they operate (previously such requirement for payment only existed for headquarters of these enterprises). They constitute a template that jurisdictions can translate into domestic law.

Objectives of the document are as follows:

?  to formulate a definition of MNEs obliged to pay the minimum tax;

?  to elaborate a mechanism for calculating an MNE’s effective tax rate and top-up tax due on a jurisdictional basis;

?  to impose the top-up tax on a member of the MNE group in accordance with an agreed procedure.


The Pillar Two Model Rules consist of 10 chapters. Chapter 1 addresses questions of scope; Chapters 2-5 contain the key operative rules; Chapter 6 deals with mergers and acquisitions; Chapter 7 concerns tax neutrality and existing distribution tax regimes; Chapter 8 deals with administration; Chapter 9 provides for rules on transition, and Chapter 10 contains definitions.

The Model Rules have been designed in such a way as to cover a diverse range of tax systems and deal with issues of tax consolidation, income allocation, entity classification rules, as well as mechanisms for specific business structures such as joint ventures and minority interests. Due to such a specific selection, certain provisions of the Pillar Two Model Rules will not apply to all jurisdictions or each individual MNE.

The Rules provide for the possibility for jurisdictions to introduce their own domestic minimum top-up tax based on the GloBE mechanics, preserving a jurisdiction’s primary right of taxation over its own income.

The authors of the document will further analyze how to accommodate conditions under which the US Global Intangible Low-Taxed Income (GILTI) regime (a category of income that is earned abroad by the US-controlled foreign corporations and is subject to special treatment under the US tax code) will co-exist with the GloBE rules to avoid giving preferences to one regime over the other.

Requirements for Taxpayers

Taxpayers that either have no foreign presence or that have less than EUR 750 million in consolidated revenues are not in scope of the Model Rules. In addition, the Pillar Two Model Rules do not apply to government entities, international organisations and non-profit organisations. They also are not applicable to entities that meet the definition of a pension, investment or real estate fund.

Taxpayers in scope of the Rules calculate their effective tax rate for each jurisdiction where they operate and pay top-up tax for the difference between their effective tax rate per jurisdiction and the 15% minimum rate. Any resulting top-up tax is generally charged in the jurisdiction of the ultimate parent of the MNE.

Calculation of the Effective Tax Rate and Top-Up Tax

Income is calculated based on financial accounts, which provides a base agreed across all jurisdictions. Then, the tax attributable to that income is calculated. It includes income taxes, but does not include non-income based taxes such as indirect taxes, payroll and property taxes. There are provisions to include income taxes which are charged as a withholding tax or following the application of a Controlled Foreign Company (CFC) regime (which are allocated to the entity that earned the income).

Once the effective tax rate is calculated (the tax is divided by the income and aggregated on a per jurisdiction basis), the amount of top-up tax owed is established. It is the difference between the 15% minimum rate and the effective tax rate in the jurisdiction.

Next Steps

As stated in the foreword of the document, it is envisaged OECD/G20 Inclusive Framework members will start to introduce the new rules into domestic legislations in 2022, and they will have become fully effective by 2023.



Summary of Pillar Two Model Rules

Full text of Pillar Two Model Rules


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