General Overview
Q1. What is the Global Minimum Tax?
The Global Minimum Tax (GMT) is a co-ordinated and comprehensive system of minimum taxation developed by the Inclusive Framework on BEPS (IF) that is designed to ensure that large multinational enterprises (MNE Groups) pay a minimum level of tax on their income in every jurisdiction where they operate. While IF members are not required to adopt the GMT, any jurisdiction that implements the GMT into domestic law commits to ensure that such implementation is in line with the Model Rules, Commentary and Administrative Guidance (GloBE Rules) agreed by the IF.
The GloBE Rules apply an effective tax rate (ETR) test to an MNE Group's operations in each jurisdiction using a common tax base and a common definition of Covered Taxes. If the test determines that an MNE Group has an ETR below the agreed minimum rate of 15%, it is subject to Top-up Tax under the rules. The GloBE Rules have a common way of calculating the amount of Top-up Tax that is due by the MNE Group and determining where that tax is payable.
Jurisdictions may choose to implement the GMT through any one or a combination of the following rules:
a Domestic Minimum Top-up Tax (DMTT) that applies to the local entities and operations in the jurisdiction;
an Income Inclusion Rule (IIR) that applies to the subsidiaries of an in scope MNE Group that are owned through a holding company in the jurisdiction; or
a UTPR that operates as a backstop to the other rules by adjusting the tax paid in the local jurisdiction where the MNE Group has unpaid Top-up Tax for that or any other jurisdiction.
These rules are applied by each implementing jurisdiction in accordance with an agreed rule order that ensures an MNE Group will not be subject to Top-up Tax in different implementing jurisdictions in respect of the same undertaxed profit.