What it calculates

BEPS Pillar Two establishes a 15% global minimum effective tax rate for multinational groups above a revenue threshold. Where a group's effective rate in a jurisdiction falls below 15%, a top-up tax brings it up to that floor - so the benefit of a low-tax jurisdiction is collected somewhere regardless.

How it is calculated

For each jurisdiction, compute GloBE income and adjusted covered taxes, then divide to get the effective tax rate. Where that rate is below 15%, the top-up percentage is the shortfall. Apply it to excess profit, which is GloBE income less the substance-based income exclusion - a carve-out equal to a percentage of tangible assets and payroll in that jurisdiction, recognising that real operations deserve some shelter. The resulting top-up tax is then collected under the qualified domestic minimum top-up tax, the income inclusion rule, or the undertaxed profits rule, in that order of priority.

How to read the result

The substance carve-out is what separates genuine operations from profit shifting, so a jurisdiction with real factories and staff can sit below 15% and still owe little. Model the effect jurisdiction by jurisdiction rather than at group level, because blending hides the exposure. The order of collection matters commercially: if the source country enacts a qualified domestic top-up tax, it keeps the revenue, and the parent jurisdiction collects nothing.

Worked example

A jurisdiction has GloBE income of 50,000,000 and covered taxes of 4,000,000, so the effective rate is 8% and the top-up percentage is 7%. Tangible assets of 30,000,000 and payroll of 10,000,000 at a 5% carve-out shelter 2,000,000, leaving excess profit of 48,000,000 and a top-up tax of 3,360,000.

Common questions

Which groups are in scope?

Multinational groups with consolidated revenue of at least 750,000,000 euros in at least two of the four preceding fiscal years. Government entities, international organisations, non-profits, pension funds and certain investment vehicles are excluded.

What is the substance-based income exclusion?

A carve-out from top-up tax equal to a percentage of payroll costs and tangible asset carrying values in the jurisdiction. Rates began higher and decline over a transition period toward 5% each. It exists so the rules target profit shifting rather than genuine local activity.

Does the effective tax rate here equal the accounting effective rate?

No. GloBE income and adjusted covered taxes both start from financial accounts but carry a long list of prescribed adjustments, and the calculation is done per jurisdiction rather than for the group. A company with a 20% accounting effective rate can still owe top-up tax in a specific jurisdiction.