In the fall of 2021, the members of the Organization for Economic Cooperation and Development (OECD) agreed upon a global reform of corporate taxation which, from the point of view of the participating countries, is a step towards greater tax justice.

This “Two Pillar Model” includes the redistribution of taxation rights on residual profits with the introduction of “Pillar One”, and a global minimum taxation with “Pillar Two”. In the meantime, 140 countries have agreed on the Two Pillar Model.

Pillar One: New rules on taxation rights

The first pillar (“Pillar One”) concerns multinational enterprises with annual sales of more than 20 billion euros and a return on sales of more than 10 percent. The new system for the allocation of taxation rights is detached from the physical nexus of a traditional permanent establishment and is based solely on sales to end consumers and users above a sales threshold of 1 million euros (250,000 euros for smaller countries). As a result, this is supposed to lead to a higher right of taxation for the market states by attributing and allocating (according to a sales key yet to be finally determined) to these states a portion of the global profit. 

Pillar Two: minimum tax rate of 15 percent

For the global minimum taxation (“Pillar Two”), the OECD published model rules on December 20, 2021.

On March 14, 2022, these model rules were supplemented with a detailed 228 pages commentary.

The OECD has made the corresponding PDFs available for download: Tax Challenges Arising from the Digitalisation of the Economy – Global Anti-Base Erosion Model Rules (Pillar Two)

In addition, on December 22, 2021, the EU Commission submitted a proposal for a council directive on the European implementation of the OECD rules, which is scheduled to enter into force on January 1, 2023.

In principle, all larger multinational enterprises with a minimum consolidated turnover of EUR 750 million p.a. are to be subject to the minimum taxation. The minimum tax rate will be 15 percent.
The minimum taxation rules (GloBE rules or Pillar Two for short) apply at various levels in order to ensure minimum taxation of a multinational enterprise (MNE) group per jurisdiction.

The Pillar Two concept is based upon four technical elements, which are interrelated:
  • Income Inclusion Rule (“IIR”): Under this income inclusion rule, the effective taxation of the respective low-taxed subsidiary/permanent establishment’s foreign income is raised to the minimum tax level at the parent company/in the case of a permanent establishment at the head office. This is done by means of a so-called Top-up Tax.
  • Undertaxed Payment Rule (“UTPR”): This imposes a tax burden on companies making intra-group payments that are low-taxed at the recipient’s level.
  • Switch Over Clause: This allows the parent country, in cases of double taxation treaties with an exemption clause for low-taxed profits of foreign permanent establishments, to access the foreign permanent establishment’s tax asset in order to switch the tax burden up to the minimum tax level in accordance with the IIR.
  • Subject to Tax Rule (“STTR”): Under this rule, states will be permitted by treaty law to impose increased withholding taxes when payments suspected of profit shifting are made to low-taxed affiliates.

Investment assets, pension assets, welfare funds, international organizations, non-profit organizations, shipping companies and such group companies (but only with their own profits) that are not taxed themselves as tax-neutral regimes but for which the tax is levied at the shareholders’ level are to be exempt from minimum taxation.

The core element of the minimum taxation is a complex determination of the GloBE income and the calculation of the effective tax rate as well as any top-up tax for each jurisdiction or each member of the group (so-called “constituent entity”). A standardized template is to be developed for the declaration to be submitted. The deadline for filing the declaration is 15 months after the end of the fiscal year (18 months for the first filing).

In addition to understanding the complex substantive regulations, implementing and complying with the Pillar Two Rules requires reliable and high-quality (Group) data, stringent internal processes and a coordinated global coordination within the corporate group and the various jurisdictions. Due to the new regulations, the topic of tax compliance management systems also becomes “global”.

Terms and abbreviations relating to Pillar Two

CEConstituent Entity
ETREffective Tax Rate
GloBE-RulesGlobal Anti-Base Erosion
IIRIncome Inclusion Rule
MLIMultilateral Instrument
MNEMultinational Enterprise
SOCSwitch Over Clause
STTRSubject to Tax Rule
UPEUltimate Parent Company
UTPRUndertaxed Profit Rule
QDMTTQualified Domestic Minimum Top-Up Tax


Your contact person for the topic global minimum tax

Dr. Klaus-Jörg  Dehne

Dr. Klaus-Jörg Dehne
Head of Quality Legal & Tax
Attorney-at-Law (Rechtsanwalt)

 Ines  Paucksch

Ines Paucksch
German CPA, Certified Tax Advisor