Impact of Pillar Two and OECD Global Minimum Tax on Multinationals

A 15-percent jurisdictional floor reshapes group structures, tax provisioning, and entity-location economics, forcing treasury, controllership, and transfer-pricing teams to remodel effective rates and deferred taxes before the first top-up computations close.

GloBE rules apply a jurisdiction-by-jurisdiction effective-rate test.

Each fiscal year, a multinational computes covered taxes and GloBE income for every country, then pays a top-up on shortfalls below 15 percent through an income-inclusion rule, a qualified domestic minimum-top-up, or an undertaxed-payments rule.

Covered taxes include current tax expense plus certain deferred-tax movements, with deferred credits capped at 15 percent of deferred-tax assets and later recaptured. GloBE income starts with financial-statement profit, adjusts for divided earnings, stock-based compensation, and fair-value movements, then subtracts a substance-based carve-out equal to 5 percent of payroll and tangible-asset carrying values.

Interaction with U.S. regimes complicates the modelling.

GILTI, BEAT, and the corporate AMT rely on different bases and credit mechanisms. Jurisdictions with top-up tax lower foreign effective rates, potentially increasing U.S. foreign-tax credits yet triggering higher GILTI. If the United States does not treat qualified domestic minimum taxes as creditable, double taxation looms. Treasury guidance remains pending, so provision teams build dual scenarios: “creditable” and “non-creditable,” adjusting ASC 740 reserve positions accordingly.

Safe-harbor relief phases out after transition years.

Until 2027, groups may rely on simplified calculations using Country-by-Country Report data: if a jurisdiction shows revenue below €10 million and profit before tax below €1 million, or an effective tax rate above the transition safe-harbor rate, no top-up applies. These thresholds narrow each year, so finance models shift from CbCR approximations to full GloBE templates by 2026. IT departments map local-GAAP ledgers to GloBE lines, tagging permanent versus temporary differences for covered-tax reconciliation.

Illustrative top-up computation — 2026.

• Country A: GloBE income $120 million

• Covered current tax $12 million

• Deferred-tax expense increase $6 million (GloBE-eligible portion $4 million)

• Covered taxes $16 million

• Effective rate = 13.33 percent

Top-up rate = 15 % – 13.33 % = 1.67 percent

Top-up tax = $120 million × 1.67 % = $2.004 million

If Country A enacts a qualified domestic minimum top-up, the liability arises locally; otherwise the parent owes an income-inclusion. Journal entry at parent level:

Dr Income Tax Expense $2 004 000

Cr GloBE Top-Up Tax Payable $2 004 000

ASC 740 treats the top-up as current tax; no deferred-tax adjustment arises unless timing differences reverse future covered-tax credits.

Deferred-tax accounting adjusts for rate-blended carve-outs.

Because GloBE uses book income, deferred-tax assets and liabilities measured at domestic rates may unlock or strand future covered-tax capacity. Corporations re-measure deferred taxes when local statutory rates change to align with 15-percent minimums or when qualified domestic minimum taxes become creditable. Deferred-tax inventory includes a new line item for “GloBE deferred-tax remeasurement,” disclosed separately to explain quarterly effective-rate shifts.

Cash-management responds to top-up cash calls.

Forecast models pin top-up payments to six months after year-end, aligning with parent filings. Treasury units adjust intercompany loan maturities and dividend schedules to reserve liquidity in low-tax jurisdictions facing top-ups, or to distribute earnings before rates creep above 15 percent and strand cash under safe-harbor carve-outs.

Transfer-pricing and substance carve-outs move people and assets.

Each $10 million of additional payroll in a low-tax jurisdiction reduces GloBE income by $500 000, cutting top-up tax by $75 000. Relocating R&D engineers or warehousing tangible assets thus carries measurable rate impact but must align with DEMPE and customs valuation rules to withstand audit. Boards approve capital-expenditure transfers only after scenario modelling the combined transfer-pricing, customs duty, and GloBE savings.

IT and data-governance demands intensify.

GloBE requires data granularity beyond statutory ledgers—share-based payment detail, uncertain-tax-position movements, and tax-credit timing. Corporations deploy data lakes that pull monthly trial balances, provision workpapers, and HR cost centres into a single GloBE engine, locking quarterly snapshots for audit trails.

Planning levers to manage GloBE exposure.

1. Elect high-tax GILTI: Align U.S. rules with GloBE by removing low-tax units from top-up scope.

2. Accelerate deferred-tax reversals: Use cost-segregation and accelerated depreciation to lift covered taxes in low-rate jurisdictions.

3. Leverage qualified domestic minimums: Advocate for local adoption so creditability and cash flow stay within the jurisdiction.

4. Optimize carve-outs: Relocate tangible assets and head-count to balance operational efficiency with tax relief.

5. Synchronize dividend policy: Time repatriations to years when top-up occupies full limitation capacity, limiting double taxation.

Continuous jurisdiction-level rate monitoring, integrated data-flows, and proactive carve-out optimization remain central to absorbing Pillar Two’s global minimum-tax regime without eroding group cash flow or destabilizing the effective tax rate.

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