Since the beginning of this year of 2024, a new global tax topic is in the spotlight of the multinational enterprises, as well as for Tax Authorities of 140 countries. 

We are talking about the Global Minimum Taxation. But what is this? Where such rule came from? Who is applying it? How does it work? Who does the rule apply for? 

These are the main questions of this new global tax rule. Drove by the digitalization and globalization of the economy, OECD started in 2013 to develop a package of international taxation rules, known as BEPS, to update the existing tax rule. 

From the first BEPS rules and creation of Pillar One and Pillar Two of OECD recommendations to public tax authorities, now, in 2024, came into force the Global Anti-Base Erosion Rules (GloBe) provide for a co-ordinated system of taxation intended to ensure large multinational enterprise (MNE) groups pay a minimum level of tax on the income arising in each of the jurisdictions where they operate.

The use of GloBe rules will be by the developed and developing countries, members or not of OECD.  Of course, each country shall incorporate such rules into its domestica tax law, making possible the global minimum taxation collection. 

The GloBe Rules apply to Constituent Entities that are members of an MNE Group that has annual revenue of EUR 750 million or more in the consolidated financial statements of the Ultimate Parent Entity in at least two of the four Fiscal Years immediately preceding the tested Fiscal Year.

The GloBe Rules have two tools to apply the global minimum taxation. They are: inclusion rule (IIR) and the undertaxed payments rule (UTPR).

The Inclusion Rule (IIR) is the first analysis tool.  It will be applied and charged in the country of the MNC's controlling company. It will not apply to the business headquarters. This rule introduces a supplementary tax applied to the headquarters if the effective tax of all companies and branches consolidated in each jurisdiction does not reach the minimum tax of 15%. The top-up tax will be based on a minimum of 15%.

The Undertaxed Payments Rule (UTPR) is the second analysis tool. After application of the IIR, the UTPR is applicable for those circumstances in which the IIR is ineffective. This rule is applicable when the MNC's parent company is located in a country with favorable taxation or has not implemented the IIR rule. In this case, the additional tax will be charged in other countries where other group companies are located.

If a country with a CIT – Corporate Income Tax of less than 15% decides not to apply the GloBe rules, it will lose the right to tax. This right will go to another country. In other words, the tax cost of MNCs will be the same. It will go to the next holding company in the chain of ownership.

The effective tax is established by jurisdiction, dividing taxes paid in your jurisdiction by revenue. If the effective tax of that entity is less than 15%, the Pillar Two will be applied, and top-up tax must be paid until it reaches 15%. This additional is called the ‘Income Inclusion Rule’.

Of course, there are others additional rules, exception, adjustment to determine GloBE income or losses, substance-based income exclusions, minimis exclusion, for example, that it must be consider it. 

The next step is to apply such rules in practice and protect it from “adjustments” from the jurisdictions where the GloBe shall be incorporated. For the Brazilian perspective, there are references the Globe Rules shall be applicable in 2025/2026.  

But what is the “global” responsibilities to the correct use of the top-up taxes by the jurisdictions?  This question is a subject for other paper.  Fábio Stefani,