OECD publishes Model Rules on 15% Global Minimum Corporation Tax Rate

OECD publishes model rules on 15% global minimum corporation tax rate

OECD publishes Model Rules on 15% Global Minimum Corporation Tax Rate

On 20th December, 2021, the OECD published the Pillar Two Global Anti-Base Erosion (GloBE) Model Rules.

The Model Rules provide for a top-up tax on profits arising in a jurisdiction whenever the effective tax rate, determined on a jurisdictional basis, is below the minimum rate of 15%.

The first thing to note is that this global minimum tax rate will only apply where a company has a foreign presence and has consolidated global revenues of €750 million or more in at least two of the previous four years. For Irish resident companies outside the scope of these rules, the normal 12.5% rate of corporation tax will continue to apply. This is subject to the caveat that a proposed new EU Tax Directive would also require domestic Irish companies with a turnover in excess of €750 million to be subject to the 15% rate. We will report in more detail on the new EU rules in a separate post.

There is a de minimis exclusion for operations in a jurisdiction that are below EUR 1 million in profits and EUR 10 million in revenues, as well as special exclusions for governmental entities, pension funds and certain other investment vehicles. There is also a substance-based exclusion which will operate for the first 10 years after the introduction of the tax. The substance-based income exclusion reduces the exposure to the minimum tax and is calculated as a percentage mark-up on tangible assets and payroll costs.

The Model Rules outline two connected rules to ensure that the minimum rate of 15% will apply to corporate profits:

· The first rule is an Income Inclusion Rule (IIR), which imposes top-up tax on the group parent entity where a subsidiary earns income in a jurisdiction where it is taxed at an effective rate of less than 15%.

· The second rule is an Undertaxed Payments Rule (UTPR), which denies deductions or requires an equivalent adjustment to the extent the low tax income of a constituent entity is not subject to tax under an IIR. This rule can apply in situations where the parent cannot be taxed, and it ensures that the taxation adjustment occurs at the level of the subsidiary.

There are provisions in the Model Rules for addressing temporary differences, which arise when income or loss is recognised in a different year for financial accounting and tax. Overall, the aim of these provisions is to ensure that the minimum tax will not arise merely by reason of such a timing difference.


The Model Rules are intended to provide a template which individual countries can use to transpose the Pillar Two rules into their domestic law as from 2022. The aim is for Pillar Two to be brought into domestic law in 2022, to be effective in 2023, with the UTPR to come into effect from 2024. We expect that the Irish government will soon clarify its implementation timetable in 2022.


The OECD has also signaled that further consideration will be given to how the US Global Intangible Low-Taxed Income (GILTI) regime will co-exist with the GloBE rules. The FAQ to the Model Rules notes that

the question of GILTI co-existence will be considered and that proposed legislative changes to the GILTI regime, such as the Build Back Better Act, will be incorporated into this process to the extent those changes are enacted.

The OECD is currently developing a GloBE Implementation Framework to facilitate the co-ordination and administration of the global minimum tax which will be finalized by the end of 2022, and Pearse Trust will be monitoring the situation as it develops.

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