On 20 December 2021, the OECD / G20 Inclusive Framework on BEPS involving 137 countries issued detailed rules for the Pillar Two global minimum effective tax rate of 15%.  These rules have since been supplemented by the release of detailed OECD Commentary and illustrative examples regarding the application of the Pillar Two rules. The EU has also released a draft Directive aimed at transposing the rules for EU member states.

The minimum effective tax rate and how it is calculated is one element of the Pillar Two GloBE plan. The actions to take if profits are not taxed in the home country at an effective rate of at least 15% is another.  Excluded from the OECD release were details on the Subject to Tax Rule (STTR). The STTR provides for withholding tax on payments included on a defined list (e.g., interest, royalties), from developing countries. Details on this rule are expected to be released in early to mid-2022.

Details on Pillar One, which provides for the reallocation of taxing rights to market jurisdictions for certain groups with turnover of greater than €20bn will be released in stages over 2022. 

The EU intends to implement the Pillar Two measures by way of a Directive. Originally released in December 2021, the Directive remains in draft form, with the latest version of this text released on 28 March 2022. It is the final agreed version of this Directive which, if it enters into force, will be transposed into Irish domestic legislation to implement the GloBE rules here.

Regarding its content, the draft text of the Directive aligns closely with the BEPS Pillar Two plan, the main exception being extending the 15% minimum effective tax rate rules to groups that meet the €750 million revenue threshold but have purely domestic operations within a single EU member state, i.e. do not have any foreign operations. This extension of the rules is required to ensure that the Directive complies with the fundamental freedoms afforded to taxpayers under the Treaty on the Functioning of the European Union, notably the Freedom of Establishment. 

Importantly, the compromise text includes a proposal to defer the transposition deadline to 31 December 2023, with the Income Inclusion Rule to become effective for fiscal years beginning on or after this same date and the Undertaxed Payments Rule to come into effect a year later, applying to fiscal periods commencing on or after 31 December 2024. Furthermore, the draft Directive proposes that EU member states with fewer than 12 in-scope groups headquartered in them may defer implementation of the rules further still to 31 December 2029, though it should be noted that other EU member states and third countries may apply the GloBE rules with respect to entities resident in members states which opt for this deferral under general GloBE rules. 

At a recent meeting of EU finance ministers held on 5 April 2022, the draft Directive had the support of all but one EU member state. However, as unanimity is required in order to pass the Directive into EU law, further discussions will be required in order to reach agreement in this regard.

Overview of the rules

The GloBE rules apply to Multinational Enterprise (MNE) groups that have annual consolidated revenue of at least €750 million in at least two of the last four years and have foreign operations (the latter criterion not applying for groups located in the EU under the EU Directive). The rules include details on implementation of the 15% minimum effective tax rate for in-scope companies. Where a jurisdiction has companies that do not pay a minimum effective tax rate of 15%, the jurisdiction in which the parent company is based will collect the additional top-up tax by way of the Income Inclusion Rule (IIR). Should the parent jurisdiction not implement an IIR, an intermediate parent may apply the IIR or finally the tax is collected in other jurisdictions via the Undertaxed Payments Rule (UTPR) by way of denying tax deductions (or other equivalent mechanism) to collectively pay the top-up tax amount locally. Examples released by the OECD in conjunction with detailed Commentary on the rules illustrate how these provisions operate together to achieve the minimum effective tax rate of 15%.

This plan pre-empts that jurisdictions will introduce domestic taxes that are consistent with the Pillar Two rules to ensure that companies in that jurisdiction will pay the minimum effective tax rate under the GloBE rules. Such domestic taxes will be credited against any top-up tax due under the GloBE rules.

The Pillar Two rules do not apply to government entities, international organisations, non-profit organisations and pensions (preserving domestic tax exemptions for sovereign, non-profit, charitable and pension fund entities). The rules also do not apply to group parent entities that meet the definition of an investment or real estate fund (preserving the widely shared tax policy of not wishing to add an additional layer of taxation between the investment and the investor). However, consideration should be given as to whether sub-groups controlled by such investment and real estate funds fall within scope of the rules in their own right.

A substance-based income exclusion provides that the GloBE Income (taxable base) is reduced by a percentage of payroll costs and the carrying value of tangible assets. The percentage of payroll costs starts at 10% and is gradually reduced each year until 2033 when it will be 5%. The percentage of the carrying value of tangible assets starts at 8%, gradually reducing each year until 2033 when it will be 5%. Further guidance will be provided in due course regarding how the exclusion should be calculated in respect of tangible assets and workers that are present in multiple jurisdictions in a period. 

A de minimis exclusion for companies located in a jurisdiction when their aggregated revenue and income does not exceed certain thresholds is provided in the rules. Companies that have average annual revenue of less than €10 million and profit/losses of less than €1 million can elect annually to be deemed to have a nil top-up tax.


A number of important updates are included from the previous Blueprint, in particular the inclusion of a deferred tax approach to address temporary differences, the option to exclude certain fair value accounting movements, and specific rules relating to group reorganisations when calculating the GloBE effective tax rate (ETR). There are transitional rules which allow certain deferred tax assets and liabilities that exist prior to the GloBE rules coming into existence to be utilised in calculating the company’s GloBE effective tax rate. The transition rules also address inter-company transfers of assets during the transition period. These rules are important and complex, and it is hoped that the implementation framework expected to be finalised by the end of 2022 will provide further guidance on how the rules might operate in practice going forward.

The plan contains details on a possible exclusion from the UTPR for MNE groups that satisfy certain criteria in the initial phase of their international activity, defined as the first five years after coming within scope of the GloBE rules.

There is also the option to introduce a safe harbour mechanism to relieve the administrative burden on companies that meet the safe harbour conditions. The Model Rules and OECD Commentary include a placeholder with respect to the safe harbour rules, specific details of which are expected to be provided as part of the Implementation Framework to be finalised by the end of 2022. 

The rules also provide that groups within the scope of the rules will be required to prepare a GloBE Information Return each year.

Impact on Irish business

The 15% minimum effective corporation tax rate will only apply to multinational groups with turnover of €750 million or more. Ireland will continue to apply the 12.5% corporation tax rate to companies with global turnover below this threshold. The 15% rate is expected to apply to roughly 1,500 businesses in Ireland. For most taxpayers, circa 160,000 businesses, there should be no change if these proposals are introduced. While these Pillar Two proposals may result in additional tax revenue in Ireland, the Irish Government have retained their overall position that the combined Pillar One and Pillar Two proposals will reduce tax revenue by €800 million to €2 billion.

A top-up tax, either via the IIR or UTPR, should not apply to an entity where its profits in a jurisdiction are subject to GloBE ETR of at least 15%. It is likely that many jurisdictions, including Ireland, will introduce legislation that levies an additional amount of corporation tax on in-scope companies tax resident in that jurisdiction to ensure a minimum effective tax rate of 15% under the GloBE rules applies. This should ensure the benefit of the minimum rate is reflected in the jurisdiction in which the profits are generated.

As announced by the Minister for Finance, Ireland should continue to be able to allow our tax system to support innovation and growth, including through the use of R&D tax credits, following implementation of the GloBE rules. An important element of this will be to ensure that our R&D regime is considered a ‘qualifying refundable tax credit’ under the GloBE rules. Where this is the case, the R&D tax credit would be recognised as part of a company’s income and not as a reduction in covered taxes for GloBE purposes, thus not disproportionately impacting the ETR calculation.

Maintaining competitiveness

Maintaining Ireland’s competitiveness is critical in light of the triple threats of international tax changes, Brexit and the ongoing economic recovery from COVID-19. It will be important that the government maintains and enhances Ireland’s competitiveness for both domestic businesses and multinationals based or looking to invest here.

The final tax reform proposals move ever closer to finalisation at an OECD and EU level, as detailed GloBE rules and Commentary are now available from the OECD, along with a draft Directive implementing the rules in the EU. Therefore, it will be important for all large businesses who are likely to be in scope of these measures to understand the potential impact on their business, including modelling the impact on their effective tax rate. These changes could also drive a demand for additional resources within their business in order to comply with the complex measures, including the need for financial accounting input given the importance of the financial statements in calculating the ETR for GloBE.

Maintaining a watchful eye on US tax reform proposals will also be required, as the ability of the US to participate in these OECD proposals will be key.  While the intention has been to find a way for the US GILTI rules to co-exist with the GloBE rules, this requires amendments in the US to be enacted and interestingly there is only a single mention of GILTI in the OECD Model Rules and Commentary, simply reiterating this intention. As of now, it is not clear whether the US will be in a position to introduce the tax changes necessary to make this happen.

UK implementation


The UK has closed a public consultation on the implementation in the UK of Pillar Two. The consultation document states that HM Treasury anticipates that the implementing domestic legislation relating to the Income Inclusion Rule would be included in Finance Bill 2022-23 and would have effect from 1 April 2023. The outcome to public feedback submitted through the consultation will be released in due course. Further information is available here.

Watch our webinar

On Thursday, 20 January 2022 KPMG Ireland held a webinar to discuss the current state of play.

Our panellists covered:

  • US update – including the proposed key tax changes, the next steps and likelihood of tax reform, and the interaction with the OECD process;
  • OECD developments – overview of the OECD’s Model Rules for Pillar Two and the road to implementation;
  • EU developments – the release of a draft Directive to introduce Pillar Two, Public CbC status and other tax proposals.

Get in touch

The pace of change is challenging leaders like never before. To find out more about how KPMG perspectives and fresh thinking can help you focus on what’s next for your business or organisation, please get in touch with our team below. We'd be delighted to hear from you.

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