Article
Global minimum tax: Top-up tax levied on low-taxed operations
The Global minimum tax ("GloBE”) rules including the Qualified Domestic Minimum Top-up Tax (“QDMTT”) entered into force in most CE jurisdictions as of 2024. The purpose of the rules is to levy top-up tax on in-scope company groups whose effective tax rate (“ETR”) falls below 15% in a given jurisdiction. The subjects of GloBE are the large multinational and domestic groups, which have a consolidated annual revenue reaching or exceeding EUR 750 million in at least two of the four fiscal years preceding the fiscal year concerned.
As a first step, in-scope groups should assess the ETR in each jurisdiction where they operate to identify any potential top-up tax obligations. It is important to note that, beyond corporate income tax, certain local taxes (such as local business tax in Hungary) may be included in the ETR if they qualify as covered taxes under the GloBE framework.
Various sector-specific tax incentives, such as investment incentives tax relief and R&D deductions can reduce the ETR and thus trigger top-up tax obligation. Where such incentives are applied, companies should consider the potential ETR impacts and analyze if the top-up tax exposure may be mitigated.
Additionally, if the ETR falls below the 15% threshold, the Substance-Based Income Exclusion (“SBIE”) could offer significant benefits. The SBIE is basically an exempt amount of jurisdictional income which should not be subject to top-up tax. It is basically calculated as 5% of the Eligible Payroll Costs of Eligible Employees and 5% of the carrying value of Eligible Tangible Assets located in the jurisdiction (the applied mark-ups start at 10% and 8% respectively during transition period and decrease in time to targeted 5%). This exemption can be particularly advantageous for companies engaged in manufacturing activity.
Certain temporary reliefs, such as the transitional safe harbour, were introduced to provide in-scope groups with additional time to prepare for the application of the full‐scope global minimum tax requirements. Qualifying for the transitional safe harbour provides exemption from top-up tax liability and provides simplified compliance obligations during the transitional period (i.e., fiscal years beginning on or before 31 December 2026 and ending on or before 30 June 2028).
The qualification for the transitional safe harbour depends on meeting one of three transitional safe harbour tests (based on the group’s qualified CbC Report) and subject to a formal election.
Industry players in the automotive sector should review their eligibility to the transitional CbCR safe harbor as it can provide considerable benefits to the group in terms of cash-flow and compliance obligations.
Given the nature of manufacturing activity, meeting one of the three transitional safe harbour tests seems achievable to most automotive companies.
Within the framework of our services, we would be happy to assist groups with the safe harbour tests and the preparation for the global minimum tax regime in general.