Global Minimum Tax and International Tax Framework Evolution

The global minimum tax is an initiative led by the Organization for Economic Co-operation and Development and the Group of Twenty that was designed to address the allocation of taxing rights and the erosion of national corporate tax bases. The first phase was formalized in 2015 through the Action Plan on Base Erosion and Profit Shifting, introducing rules on transfer pricing, country-by-country reporting, and other measures aimed at enhancing tax transparency and integrity.

The second phase was the result of subsequent developments in the global economy—particularly digitalization and the growing importance of intangible assets known as the Two-Pillar Solution.

• Pillar One: focuses on reallocating taxing rights among jurisdictions, allowing countries where customers are located to tax a portion of the profits generated by certain large multinational groups, even when those companies do not have a physical presence there.
• Pillar Two: introduces a global minimum corporate income tax rate of 15%, applicable to multinational enterprise groups with annual consolidated revenues of at least seven hundred and fifty million euros.

Pillar Two operates through three core mechanisms:

• The Income Inclusion Rule: A parent company must pay additional tax in its country of residence if its subsidiaries are taxed below 15% elsewhere.
• The Undertaxed Profits Rule: This rule applies when the Income Inclusion Rule is not effective, allowing other group entities to account for the shortfall.
• The Qualified Domestic Minimum Top-up Tax: This rule allows jurisdictions to collect the tax difference locally before it can be collected by other countries.

 The European Union adopted a directive making the rules applicable across Member States from January 1st, 2024, and countries including the United Kingdom, Japan, South Korea, and Australia have begun domestic implementation processes.  As of mid-2025, more than 140 jurisdictions have joined the Inclusive Framework.

In essence, the global minimum tax, represents an ongoing multilateral effort to adapt the international tax framework to the structure of the global economy.