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Global minimum corporate tax of 15%

Updated: Nov 19

The Organisation for Economic Co-Operation and Development (OECD)/G20 Inclusive Framework on Base Erosion and Profit Shifting (IF) has agreed a two-pillar solution to address the tax challenges arising from the digitalisation of the economy.

The Organisation for Economic Co-Operation and Development (OECD)/G20 Inclusive Framework on Base Erosion and Profit Shifting (IF) has agreed a two-pillar solution to address the tax challenges arising from the digitalisation of the economy.


The global minimum corporate tax rate has been agreed to the rate of 15% and is intended to come in effect as of 2023.


136 countries and jurisdictions which represent 90% of the global economy agreed to impose a two-pillar global tax reform plan as follows:

  • Pillar 1 is focused on changing where large companies pay taxes.

  • Pillar 2 includes the global minimum tax.

Four countries, Kenya, Nigeria, Pakistan and Sri Lanka have not agreed to the reform plan.


OECD estimates that more than $125bn (£92bn) of corporate profits from about 100 of the world’s largest and most profitable multinationals (MNEs) would be reallocated under the first pillar of the twin-pronged reforms.


Regarding the second pillar, which refers to the global minimum tax rate of 15% on large companies, the aim is not to eliminate tax competition but to set rules limiting a race to the bottom on tax.


The new 15% minimum rate will apply to businesses with revenues of at least $867 million (€750 million), including multibillion-dollar companies such as Amazon, Apple and Facebook.


Implementing the global minimum tax rate will force large multinationals (MNEs) to pay taxes in countries where they operate and not just where they have their headquarter offices.


The countries will also have additional scope to tax international corporations operational inside their jurisdiction, albeit they do not have a physical presence there.


It is estimated that the minimum tax that will be generated will reach the amount of $150 billion (€129.6 billion) in additional global tax revenues annually.


Furthermore, taxes on almost $125 billion (€107.9 billion) of profit are going to be shifted to the countries where they have their operations from the low-tax countries where they are currently recorded.


With that agreement, OECD believes that multinationals (MNEs) will be encouraged to repatriate capital to their headquarters’ countries, giving a boost to those economies.


In simple words, OECD's global minimum tax proposal involves paying a top-up tax at the level of the parent company if income made on all of the consolidated companies or branches in that jurisdiction has been taxed below the global minimum rate.


The global minimum tax itself should not directly alter any tax incentives that are offered under domestic laws. However, where a tax incentive results in a group falling below the global minimum tax rate, top-up tax could apply. This may result in reducing or eliminating the benefit of the incentive.


Regarding the provision of losses incurred before the implementation of the global minimum tax, the basis under which they are recognized is not yet verified and agreed. It is not clear whether or not the losses will be restricted for a particular retrospective period, whether they may be restricted to operating losses only, and whether they will be calculated based on current local tax law or the global minimum tax rules.


The main provisions of the two pillars are as follows:


Pillar 1

  • Pillar 1 referred to "Amount A", which would apply to companies with more than €20 billion in revenues and a profit margin above 10%. For those companies, part of their profits would be taxed in jurisdictions where they have sales.

  • There will be a new special purpose nexus rule permitting allocation of Amount A to a jurisdiction when the in-scope MNE derives at least 1 million euros in revenue from that jurisdiction. For smaller jurisdictions with a GDP of less than 40 billion euros, the nexus will be set at 250.000 euros.

  • Furthermore, 25% of profits above a 10% margin might be taxed.

  • After a period of seven years, the €20 billion threshold may be decreased to €10 billion.

  • Companies specializing in the extractive sector (like oil, gas, and other mining companies) and regulated financial services companies are excluded from the policy.

  • Elimination of double taxation and tax certainty measures will apply.

  • Amount A is a partial redistribution of tax revenue from countries that currently tax large multinationals based on the location of their headquarters offices and operations to countries where those companies have their revenue.

  • Pillar 1 also refers to "Amount B", which would provide a simplified method for companies to calculate their tax liabilities on foreign operations such as marketing and distribution.

Pillar 2

  • Pillar 2 refers to the global minimum tax. It includes two main domestic rules and a third rule for tax treaties.

  • These rules are intended to apply to companies (MNEs) with more than €750 million in revenues.

  • The first rule in Pillar 2 is the income inclusion rule, (IIR), which determines when the foreign income of a company should be included in the taxable income of the parent company. The agreement places the minimum effective tax rate at 15%, otherwise additional taxes would be owed in a company’s home jurisdiction.

  • The income inclusion rule would apply to foreign profits after a deduction for 8% of the value of tangible assets (like equipment and facilities) and 10% of payroll costs. Those deductions would be reduced annually over a 10-year transition period. At the end of the transition, the deduction for both tangible assets and payroll would be 5%.

  • The income inclusion rule (IIR) will increase the tax costs of cross-border investment and impact business decisions on where to invest worldwide, including in domestic operations.

  • The second rule in Pillar 2 is the under-taxed payment rule, (UTPR), which would allow a company to deny a deduction or charge withholding tax on cross-border payments. If a company in one country is making payments back to its parent entity (which is in a low-tax jurisdiction), then the under-taxed payments rule might apply.

  • There is an exclusion from the under-taxed payments rule for companies that are within the scope of Pillar 2 for less than five years, have a maximum of €50 million in foreign tangible assets, and operate in less than five different jurisdictions.

  • The income inclusion rule and the under-taxed payments rule create a minimum tax both on companies that are investing overseas and on foreign companies that are investing domestically. They are each tied to the minimum effective rate of at least 15%, and they would apply for each jurisdiction where a company operates.

  • The third Pillar 2 rule is the subject to tax rule, (STTR), meant to be used in a tax treaty framework to give countries the ability to tax payments that might otherwise only face a low rate of tax. The minimum tax rate for this rule would be set at 9%.

  • The STTR will be considered as refundable tax under the IIR and UTPR (i.e., the STTR applies first).

  • Pillar 2 should be voted into law in 2022, and come into effect in 2023, with the UTPR coming into effect in 2024.

In order for Pillar 1 to be effective, all countries should adopt the rules and principles in the same manner so as to avoid having to deal with multiple approaches across the world.


Pillar 2 is more optional, but if enough countries adopt the rules and principles, then much of the corporate profits across the world would be taxed at a 15% effective tax rate.

*DISCLAIMER: This article and its publication are intended to provide a brief introduction and act as a general guide. This is provided for information purposes only and cannot be utilized as a substitute for professional advice. This document does not represent a legal opinion and one must not rely on it without receiving independent advice based on the particular facts of its own case. No responsibility is accepted by the author or the publishers for any loss suffered from acting or refraining from acting based on the contents of this publication.


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