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Global minimum tax is taking shape

January 6, 2022

Authored by RSM Canada LLP

Cleo L. Melanson, CPA, CA, CMA shared this article


On Dec. 20, 2021, the Organisation for Economic Co-operation and Development (OECD) released its detailed model, the Global Anti-Base Erosion (GLoBE) Rules, to assist in the implementation of a coordinated international tax system. Developed under Pillar Two of the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS), the GLoBE Rules provide a common framework to implement the global minimum tax of 15% for multinational enterprises (MNEs) beginning in 2023. 

Specifically, the GLoBE rules:

  • Define the MNEs within the scope of the minimum tax. Generally, the global minimum tax will apply to MNEs with consolidated revenue that exceeds EUR 750 million in two of the preceding four fiscal years;
  • Set out a mechanism for calculating an MNE’s effective tax rate on a jurisdictional basis and determining the amount of top-up tax payable under the rules. If the effective tax rate in a jurisdiction is below 15% based on the calculation, additional tax will apply;
  • Impose the top-up tax on the ultimate parent entity of the MNE resident in a jurisdiction that has implemented the rules, in proportion to its ownership interests in those entities that have low taxed income;
  • Provide de minimis exclusions to allow a reduction of top-up tax to zero if (1) the average revenue is below EUR 10 million, and (2) the average profit is below EUR 1 million; and
  • Provide substance-based carve-out rules that allow 10% of the eligible payroll cost and 8% of the eligible tangible fixed assets to be deducted from the income base when calculating the effective tax rate.  

The rules address the treatment of mergers, acquisitions, and disposals of group members and include specific rules to deal with particular holding structures and tax neutrality regimes, for example where an ultimate parent is a flow-through entity. 

The rules also address administrative aspects, including information filing requirements and elections, and provide for transitional rules for MNEs that become subject to the global minimum tax. 

EU updates

Following the release of the GLoBE Rules, the EU Commission published its own proposed directive to incorporate the GLoBE rules, as it aims to have the rules applied in practice by mid-2023. The directive provides a common set of rules for calculating the effective tax rate.

In addition, the EU Commission released a second press release relating to the treatment of holding companies and the misuse of shell companies for tax purposes. The directive introduces substance requirements for certain tax resident companies of the EU. Where such companies do not meet these substance requirements, additional taxation may apply. As such, it is likely that the favourable tax treatment of holding shell companies will be denied where there is no business link with the operating subsidiaries owned through the holding company. 

Next steps for Canada

The government of Canada will now be tasked with drafting and implementing legislation that is in line with the GLoBE Rules. This will likely be a lengthy process, given the government already has a long list of outstanding proposals. Additionally, in light of the EU Commission’s shell company directive, Canadian MNEs with an EU footprint should reconsider any holding structures where economic substance is weak.

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This article was written by Jiani Qian, Sigita Bersenas and originally appeared on 2022-01-06 RSM Canada, and is available online at

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