2024 Updates on Global Minimum Tax

Knowledge • 2024 Updates on Global Minimum Tax

2024 Updates on Global Minimum Tax (GMT).

As one of the most discussed topics, the Global Minimum Tax (“GMT”) is one of the largest tax reformations as part of the initiative under Pillar 2 of the Base Erosion Profit-Shifting (“BEPS”) 2.0 project. It subjects multinational companies, with an annual revenue of more than EUR 750 million in minimum 2 out of the past 4 fiscal years, a minimum tax rate of 15% regardless of their location.

The Pillar 2 Model Rules, also known as Global Anti-Base Erosion (“GloBE”) Rules, were released by the OECD on 20 December 2021 to end the competition between countries to offer the lowest possible corporation tax rates to attract foreign investments by subjecting multinational groups around the world to a global minimum tax of 15%.

Implementation of GMT in the region

Whilst several countries such as Australia, South Korea, Japan, and Vietnam have commenced the implementation of GMT as of 1 January 2024, other countries such as Malaysia, Singapore, Thailand, and Hong Kong are expected to implement the rules from 1 January 2025 onwards.

Jurisdictional GloBE ETR

ETR calculation is performed at the jurisdictional level for each multinational subgroup to determine whether top-up taxes are required.

Top-up Tax Calculation

In determining the jurisdictional GloBE ETR, if below 15%, the top-up tax is required to be computed. Figure 1 below illustrates the top-up tax calculation.

Figure 1: Top-up tax percentage calculation

GloBE top-up taxes are levied on excess profit, i.e. profit which are in excess of an exclusion for economic substance.

In other words, the Excess Profit is computed by the exclusion of Substance-Based Income Exclusion (“SBIE”) from the GloBE Income. The SBIE excludes a share of GloBE Income from the tax base under the GloBE Rules, based on the amount of tangible assets and payroll reported in a jurisdiction.

During the year-one SBIE transition period, the SBIE equals to sum of 8% of the value of tangible assets and 10% of the value of payroll. Subsequently, the SBIE reduces to a sum of 5% of the value of the tangible assets and 5% of the value of payroll in year-ten SBIE.

Figure 2 below illustrates the detailed top-up tax calculation on a jurisdictional level.

Figure 2: Top-up tax calculation

Note: GMT ETR is calculated based on Covered Taxes divided by GloBE Income.

Collection of Top-up Tax

The jurisdiction has the right to collect top-up taxes determined through the implementation of GMT. The top-up taxes can be collected by implementing a Qualified Domestic Minimum Top-up Tax (“QDMTT”).

Remaining top-up taxes post implementation of QDMTT can be collected by the Ultimate Parent Entity’s jurisdiction under the Income Inclusion Rule (“IIR”). The IIR can also be collected under the Intermediate Parent Entity. Where QDMTT is not applied by a jurisdiction, the IIR will generally be applicable.

If there are still top-up remaining post QDMTT and IIR, the Undertaxed Profits Rule (“UTPR”) can be applied as a backstop to ensure all low-taxed income is taken into account under the GMT. Under the UTPR, each jurisdiction can collect top-up tax in proportion to the amount of substance of the MNE group in the jurisdiction.

Figure 3: Top-up Tax Rules under GMT

Need assistance with your Global Minimum Tax calculations?

Our goal is to offer a reliable alternative for transfer pricing needs, delivering proactive, practical, and cost-effective advisory services enhanced by cutting-edge technology.

4 Nov

Mastering Transfer Pricing in Asia

Join us in this seminar as we delve into real-life case studies to share practical knowledge on managing transfer pricing in Singapore and the Asia Pacific region.

READ MORE READ MORE

23 Oct

Staying Ahead on Transfer Pricing Trends & Developments

In this half-day course, the participants will learn how the MNEs are impacted by the recent transfer pricing developments and the practical strategies to update transfer pricing policies.

READ MORE READ MORE

26 Sep

Mastering TP Documentation and Benchmarking Analysis: Best Practices for Success

This seminar is designed to share practical knowledge through real life case studies about key aspects of managing transfer pricing risks.

READ MORE READ MORE

18 Aug

Mastering Transfer Pricing in Asia

Join us in this seminar as we delve into real-life case studies to share practical knowledge on managing transfer pricing in Singapore and the Asia Pacific region.

READ MORE READ MORE

19 May

Staying Ahead on Transfer Pricing Trends and Developments

In this half-day course, the participants will learn how the MNEs are impacted by the recent transfer pricing developments and the practical strategies to update transfer pricing policies.

READ MORE READ MORE

9 May

Managing Transfer Pricing in Asia - 4th Run

Join us in this workshop in collaboration with TAKX as we delve into real-life case studies to share practical knowledge on managing transfer pricing in Singapore and the Asia Pacific region.

READ MORE READ MORE

23 Apr

Introduction to Transfer Pricing - 49th Run

The Introduction to Transfer Pricing workshop is designed to arm participants with an understanding of transfer pricing as well as transfer pricing compliance in various Asia Pacific countries.

READ MORE READ MORE

10 Apr

Practical. Proactive. Cost Effective.

READ MORE READ MORE

4 Apr

The New Transfer Pricing and TP Audit Guidelines in Malaysia - Part 2

Comprising all of 180 pages long excluding appendices, the TP guide certainly has gotten the attention of many businesses and the tax community, both in Malaysia and Singapore.

READ MORE READ MORE

13 Mar

What’s The Deal With JS-SEZ?

From 1 January 2025 to 31 December 2034, companies operating in qualifying sectors can apply to the Malaysian Investment Development Authority (MIDA) for the various tax incentive schemes under the JS-SEZ Tax Incentives Package.

READ MORE READ MORE

6 Mar

Transfer Pricing for Intragroup Financing

This webinar is designed to provide participants with practical strategies and insights for managing the complexities of intragroup financing in Malaysia.

READ MORE READ MORE

14 Feb

The New Transfer Pricing and TP Audit Guidelines in Malaysia - Part 1

Comprising all of 180 pages long excluding appendices, the TP guide certainly has gotten the attention of many businesses and the tax community, both in Malaysia and Singapore.

READ MORE READ MORE