11 January 2022

MME Pillar Two – Computation Top-up Tax

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  • Structuring / Relocation

The Model Rules published by the OECD are the next step towards a global minimum tax. One of the key elements is the multi-level top-up tax calculation to identify low-taxed jurisdictions.


On 20 December 2021, the OECD published the highly anticipated "Global Anti-Base Erosion (GloBE) Model Rules" regarding Pillar Two, which is part of the two pillar solution developed by the OECD/G20 Inclusive Framework. The regime aims to ensure a global minimum tax of 15% for large Multinational Enterprises (MNEs) with annual revenues above EUR 750 million. The model rules constitute the next substantial specification of the Blueprint published in October 2020 and are intended to provide a template for the transfer of the global minimum tax concept into domestic law.

These GloBE rules form the core of Pillar Two, which is a coordinated system of a multitude of interlocking provisions intended to ensure a global minimum tax of 15% through a subsidiary allocation of the right of taxation to foreign states. In addition to administrative and scope-related considerations, two aspects in particular must be differentiated conceptually:

  • Provisions to ensure a uniform tax assessment and identify low-taxed jurisdictions (Computation of top-up tax);
  • Provisions to levy top-up tax and thereby ensure a minimum level of taxation (either by applying the Income Inclusion Rule [IIR] or the Undertaxed Payment Rule [UTPR]).

Computation of Top-up Tax

The step-by-step procedure for calculating the top-up tax is as follows:

Step-by-Step Procedure to Compute Top-up Tax of a Constituent Entity (CE)

Step 1 Determination Covered Taxes per CE Computation of Adjusted Covered Taxes
Step 2 Adjustments to Covered Taxes
Step 3 Determination of GloBE Income or Loss per CE Computation of Adjusted GloBE Income or Loss
Step 4 Adjustments to GloBE Income or Loss
Step 5 Aggregating Adjusted Covered Taxes per jurisdiction Jurisdictional blending
Step 6 Net GloBE Income = Aggregating Adjusted GloBE Income and Adjusted GloBE Loss per jurisdiction
Step 7 GloBE ETR = Total of Adjusted Covered Taxes divided by Net GloBe Income Computation of GloBE ETR
Step 8 Top-up Tax Percentage = Minimum Rate (15%) minus GloBE ETR Computation of Top-up Tax
Step 9 Excess Profit = Net GloBE Income minus Substance-based Income Exclusion (Carve-out)
Step 10 Jurisdictional Top-up Tax = (Top-up Tax Percentage multiplied by Excess Profit) plus Additional Current Top-up Tax minus Domestic Top-up Tax.
Step 11 Top-up Tax of a CE = Jurisdictional Top-up Tax multiplied by GloBE Income of a CE divided by Aggregate GloBE Income of all CE's
Top-up Tax Extent of existing under-taxation (in terms of amount or percentage)
Additional Current Top-up Tax  Correction due to adjustment of the top-up tax calculation in previous years
Domestic Top-up Tax National surtax to achieve minimum tax or prevent top-up tax.

Future MME blog entries will examine the individual steps and other issues in connection with the introduction of Pillar Two in more detail.


Recommended action for companies

In view of the ambitious timetable that envisages implementation in 2023 respectively 2024 (for the UTPR), it is crucial for internationally operating MNEs to identify if and to what extent they will be impacted by Pillar Two. Our team would be glad to assist you. We look forward to hearing from you.


Further Information

GloBe Model Rules

Model Rules Fact Sheets

Overview Two Pillar Solution

Blueprint Pillar One and Two