Pillar Two: practical issues in QDMTT implementation

As an increasing number of jurisdictions contemplate the introduction of qualifying domestic minimum top up taxes (QDMTT) as a means to capture top up tax locally, questions arise as to precisely how those QDMTTs should be implemented. The definition of a QDMTT requires equivalence with the GloBE rules. However, it is not clear whether this is limited to equivalent outcomes in terms of total top up tax collected or also whether the allocation between jurisdictions must also be respected.

The allocation question could be problematic given the purpose of QDMTTs to capture tax locally and their inherent domestic nature. One issue of particular interest is whether a QDMTT should give credit for CFC taxes levied by a foreign jurisdiction, which could effectively reduce top up tax collected under a QDMTT in favour of a collection under CFC rules by a foreign parent.

Jonathan Culver, a financial services tax partner in our Hong Kong office, explores this issue in detail in an article recently published in the Asia Pacific Journal of Taxation.

For further information, please contact Jonathan Culver to obtain a copy of the article and/or to discuss Pillar 2 more generally.