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Let the GILTI/GLOBE Games Begin

Posted on May 16, 2022
Allison Christians
Allison Christians

Allison Christians is the H. Heward Stikeman Chair in Tax Law at McGill University in Montreal, where she writes and teaches national and international tax law and policy. You can follow her on Twitter (@profchristians), TikTok (@profchristians), or via her website at

In this installment of The Big Picture, Christians considers the intricate design of the OECD’s global anti-base-erosion regime, how it encourages countries to respond even if they choose not to adopt the GLOBE rules, and why a 15 percent minimum tax rate doesn’t really mean 15 percent.

Some readers will no doubt have rationally ignored the global minimum tax discussions and drafts (and examples and commentary and punditry) until forced to contend with the morass at some future, unspecified date. But there are some fascinating ideas circulating through the rules and standards, including an emerging set of interdependent policy incentives worth reflection, even if studying the technical rules at length is not one’s first priority.

One of those incentives arises in the way the global anti-base-erosion (GLOBE) regime has been written to account for corporate shareholder-level taxes on controlled foreign corporations (presumed to include the U.S. global intangible low-taxed income regime). Counting those shareholder-level taxes at the corporate subsidiary level creates a policy game that many countries will soon be playing, whether they choose to adopt GLOBE or not.

The rules of the game are many and complex, but the OECD has made things somewhat more accessible by providing commentary and examples to help illustrate the various aspects of GLOBE. Consider chapter 4 of the model rules and commentary,1 setting out the method for computing a company’s effective tax rate (ETR) in a given jurisdiction for determining how GLOBE will apply.

For clarity, GLOBE works with the concept of a multinational group in which included members are referred to as constituent entities and the topmost constituent entity is the ultimate parent entity. If GLOBE applies, then countries will look to impose a top-up tax at a controlling shareholder level to ensure that the overall ETR of the multinational group reaches the agreed minimum rate of 15 percent everywhere it operates.

For example, if a country imposes corporate tax of 4 percent on a constituent entity and GLOBE applies to the group, the general idea is that some other country where at least one controlling corporate shareholder of the low-tax constituent entity resides would impose a top-up tax of 11 percent on that shareholder (as explained below, the actual rate to be imposed involves further complication). The country collecting the top-up tax would often be the residence country of the ultimate parent entity, but it could also be that of an intermediate constituent entity if the ultimate parent declines the honor. That top-down, top-up tax shuffle is embodied in the IIR (formerly known as the income inclusion rule) illustrated in the scenarios shown in figures 1 and 2.

Figure 1. Topping Up to an Ultimate Parent Entity
Figure 2. Topping Up to an Intermediary Instead

Chapter 4 adds depth to the top-up tax story by introducing the new concept of adjusted covered taxes to the well-known old concept, the ETR. Before GLOBE came along, if asked to define a company’s ETR, one would probably respond that an ETR generally is the amount a company pays in taxes as a percent of its total income. In making that simple ETR calculation, in the absence of an income consolidation rule, the taxes one company pays in one country would not be “counted” as taxes another company pays in another country. But the covered taxes concept does just that: A company’s ETR in a jurisdiction is to be computed by reference to the company’s (pre-GLOBE) ETR from domestic tax plus a limited amount of corporate shareholder-level tax imposed on deemed distributions as a result of a foreign CFC regime.

Because of the covered tax concept, when used in the context of GLOBE, “ETR” is a term of art that means a combination of the source-state ETR imposed at the company level plus a specified amount of the CFC tax imposed by another country on deemed distributions at the (corporate) shareholder-level. (For reasons that will become clearer, it might have been helpful to call GLOBE’s combined ETR a combined ETR or CETR.) The combined ETR rule permits multinational groups to reallocate — or push down — some amount of tax they pay on deemed distributions from their CFCs to the CFCs themselves. The point is to increase subsidiaries’ overall tax rates before determining any GLOBE top-up tax to be collected at the parent level.

To demonstrate how those rules work, the OECD offers an illustration that is potentially helpful, although its use of duplicative numbers makes it a bit difficult to follow. The example involves A Co., located in Country A where it is subject to a 25 percent corporate income tax rate. A Co. wholly owns B Co., located in Country B and subject to a corporate rate below 15 percent (the OECD example uses 5 percent, but to reduce duplication, assume the rate is 4 percent). Company B earns operating income and passive income, with the latter subject to CFC tax in Country A. In the OECD example, the company earns equal amounts of each income type but again, to differentiate, assume the company earns $60 in passive income, which is subject to CFC rules in Country A, and $40 in operating income. Thus modified, the example yields the structure and rates shown in Figure 3.

Figure 3. The Combined ETR Idea

Is This 15 Percent?

The combination of CFC and domestic taxes reaching 16.6 percent might lead one to a preliminary conclusion that this multinational group has certainly been subject to an overall rate above 15 percent and so ought not be subject to GLOBE. However, that conclusion is incorrect. In the example, the group pays combined taxes in excess of 15 percent only because Country A’s tax rate exceeds 15 percent by a considerable margin. Attributing all of Country A’s tax to B Co. would in effect let Country A soak up the “top-up tax potential” produced by B Co.’s low Country B tax rate, even if Country A did not adopt GLOBE. Ostensibly to prevent blending of high- and low-taxed passive income streams even though blending is precisely what the pushdown rule is doing, the covered tax calculation therefore includes a cap on the amount of the group’s CFC taxes on passive income that can be treated as paid by the lower-tier subsidiary for GLOBE purposes.

Adjusted covered taxes can be expressed as a (fairly convoluted) formula. The cap on a given CFC tax pushdown is the lesser of (1) the rate of foreign tax (τF) imposed on passive CFC income (PCFCI) less any available foreign tax credits; and (2) the difference between the agreed minimum GLOBE rate (τG) and the source country’s ETR determined without regard to GLOBE (this is where using ETR potentially causes confusion; let’s call it τETR_PS for preliminary source ETR). Thus:

Adjusted Covered Taxes =

min{(τF * PCFCI) - FTC, (τG - τETRPS) PCFCI}

In the example above, the pre-pushdown top-up tax rate is the difference between 15 and 4 percent, or 11 percent. Applied to the passive CFC income, that top-up tax rate produces the maximum pushdown amount, as:

Adjusted Covered Taxes =

min{(0.25 * 60) - 2.40), (0.15 - 0.04)60}

Accordingly, because $60 of B Co.’s income was passive CFC income, the maximum pushdown amount is the lesser of (1) $12.60 or (2) $6.60; thus, $6.60.

Pushing Down and Soaking Up

Notice that GLOBE thus produces the potentially unexpected result that calculating a top-up tax is not a matter of simply comparing a given country’s domestic corporate income tax rate with the agreed minimum rate of 15 percent. In the example, adding the maximum amount of covered taxes of $6.60 to B Co.’s preliminary source tax of $4 on its total $100 of income yields a (combined) ETR of 10.6 percent. GLOBE would permit other countries, including Country A, which has already collected its CFC tax, to collect a top-up tax — but only on the difference between the combined ETR and the globally agreed 15 percent rate. In this case, the top-up tax rate is not 11 percent but 4.4 percent.

That means GLOBE-adopting countries, including Country A, can collect another $4.40 in tax on account of B Co.’s low rate in Country B. True, the new tax is not the $11 that might initially have been expected, but recall that even before GLOBE, the multinational group was already paying a global ETR of 16.6 percent. Now if Country A also collects a GLOBE top-up tax of $4.40, the total amount of tax paid by the multinational group is $21 (the original CFC tax of $12.60, the County B tax of $4, and the top-up tax of $4.40). That is a global effective rate of 21 percent on B Co.’s $100 of income. Readers can be forgiven if at this point they have lost track of what happened to that 15 percent agreed rate.

Now compare what would have happened if the $60 was non-passive GILTI taxed at the current rate of 10.5 percent, instead of passive CFC income taxed at 25 percent. In that case, A Co. would have faced $4.38 of tax on B Co.’s $60 of GILTI (because 10.5 percent of $60 is $6.30, but only 80 percent of the Country B tax of $2.40, being $1.92, would be creditable). The pushdown limitation does not apply because the tax is not on passive income, but in any case, $4.38 is less than the top-up tax of $6.60 as computed above. B Co.’s combined ETR for computing a GLOBE top-up tax is now 8.38 percent (the original source $4 plus the GILTI tax of $4.38, over the total GLOBE income of $100). The top-up tax is therefore the difference between 15 and 8.38 percent, being 6.62 percent.

GILTI’s lower rate soaked up less of the top-up tax potential, leaving more for GLOBE-adopting countries to collect if they will. Now, if some GLOBE-adopting jurisdiction comes along and collects the $6.62, B Co.’s overall tax paid is $15 (the original $4, plus the U.S. GILTI of $4.48, plus the GLOBE top-up tax of $6.62). Miraculously, the 15 percent has reappeared. Why? Only because the applicable rate in all the relevant jurisdictions is below 15 percent.

GLOBE’s applicability to a specific company and its ultimate impact on a multinational enterprise’s overall global ETR depends on the combined tax position of each company in the group. Everything depends on the interplay among: (1) the tax rate at the corporate level; (2) the amount and type of income that attracts a CFC tax (or GILTI) in another country; (3) the statutory tax rate imposed by that foreign CFC regime; and (4) the rate of foreign tax creditability allowed to offset the tax (which carries additional implications in the case of FTC haircuts, such as that featured in GILTI). There is no one global minimum tax rate per country but instead multiple global minimum rates calculated on a company-specific basis by reference to multiple foreign variables.

Is This the Single-Tax Principle?

The combination of jurisdictional taxes imposed on different taxpayers to determine whether “enough” tax has been imposed overall is by itself a fascinating and complicated policy decision. It implicitly invokes ideas like the single-tax principle (the general idea that all corporate income should be taxed once and only once), albeit without overly examining the theory or rationale of attributing one jurisdiction’s tax take to another’s. The operating principle seems to be that if we are to conclude that an MNE with a company in Country B did not pay enough taxes, such that some other country ought to be able to swoop in and tax the corporate shareholders a little more, then it makes intuitive sense to include all of B Co.’s actual taxes paid, as well as (at least some of) those paid by foreign shareholders on a deemed distribution basis.

But even if the notion makes intuitive sense, building a system on that premise creates complex signals for policymakers. In particular, the creation of dynamic and company-specific top-up tax potential opens up some intriguing policy options if a country’s main goal is to redistribute tax revenues to itself based on the reach of residual taxes elsewhere, but not to collect more revenue than would otherwise be collected by other countries (whether under GLOBE, GILTI, or perhaps even under existing CFC rules). In effectively creating a downward soak-up tax regime, GLOBE reopens a latent discussion on upward soak-up tax regimes. That has potentially major distributional consequences for the international tax system as a whole.

As a threshold matter, countries currently offering low-tax regimes to multinational groups must consider whether they want to raise their domestic rates on affected companies to capture the newly available tax revenues. Each country should be assumed to believe that if a tax must ultimately be paid somewhere, it might as well be the one to collect it. It is certainly possible that other considerations will lead affected taxpayers to prefer paying their taxes to one jurisdiction over another, and to such an extent that they are willing to apply pressure to achieve bespoke distributional goals. If so, the politics of sharing the global tax base are becoming ever more interesting and complex. Leaving those considerations aside for the moment, GLOBE explicitly encourages source countries to increase their domestic tax rates with what may be a contender for the award for the most tongue-tying acronym ever to emerge in tax circles — namely, the QDMTT.

Soak-Up Taxes, Redeemed

QDMTT stands for “qualified domestic minimum top-up tax,” a term that appeared for the first time in the 2021 release of the GLOBE model rules. It is a way to effectuate the idea that when the international tax community talks about global minimum taxes, the ultimate goal is not for some jurisdictions (like Country A) to impose more than 15 percent to capture the elsewhere-undertaxed, but rather for each jurisdiction to impose a minimum rate of 15 percent of its own. To make that happen, the QDMTT has to work in such a way that domestic rate increases will replace (rather than add to) GLOBE-related top-up taxes.

The way the QDMTT is written makes clear that the OECD intends countries to adopt a simple flat-rate increase to reach the agreed 15 percent rate (there is some debate about what the rules as written actually state, but assume for these purposes that this is the rule). Yet as shown above, going from 4 percent to 11 percent would significantly overshoot the overall 15 percent mark for Country B if lurking Country A CFC taxes could get pushed down to B Co.

Countries are not required to adopt a QDMTT. Even if they do, it is not clear that the regime could not be styled as a domestic alternative minimum tax that operates to impose tax at source only if a company’s ETR as computed by GLOBE would otherwise produce a top-up tax. With GLOBE explicitly calling for its downward soak-up of CFC taxes, there does not seem to be a clearly expressed rationale to prevent countries from adopting domestic alternative soak-up taxes in response, which they may as well refer to as QDMTTs.

Such a well-tailored, responsive QDMTT would not be a revenue-raising tool. Instead, it would be a revenue redistribution tool that leverages the threat of new tax revenue elsewhere to bring the new taxes to the source country instead. With enough tailoring, a responsive QDMTT would go no further than absolutely necessary in adapting to GLOBE, thus preserving existing national tax competition strategies to the maximum extent possible.

The introduction of a QDMTT to the global minimum tax brings to mind the century-old debate about the distributional implications of the then-nascent U.S. FTC, which Edwin Seligman famously characterized as “indeed generous” and “a present of revenue to other countries.”2 So generous, indeed, that the United States wrote credit limitation rules to prevent source countries from designing specifically tailored domestic taxes as a (rational) response to its residual tax approach.

GILTI is itself presumably protected by those same anti-soak-up creditability standards — or it was presumably protected by those standards until the QDMTT idea came along and started shifting perceptions about the presumed creditability of taxes designed to apply only when and to the extent that residual taxes would otherwise apply.

An Iterative Strategy Game

That GLOBE produces an iterative cross-border strategic game becomes clear when we notice that a GLOBE-adopting jurisdiction will impose additional taxes at the corporate shareholder level only to the extent that a low-tax jurisdiction does not adopt a counterclaiming QDMTT. However, the policy landscape is complicated by the presence of GILTI in an otherwise GLOBE-dominated world. If every company and country had only GLOBE to contend with, low-tax jurisdictions would face a binary choice between (1) allowing GLOBE-adopting countries to collect top-up taxes and (2) raising the prevailing domestic tax rate to soak up any top-up tax potential at source before some other country higher up the ownership chain does so.

As outlined above, that binary choice alone might be more challenging to navigate than it might appear. But in strategizing to adapt to this brave new world of interdependent global minimum tax rates, the fact that GILTI’s top rate is lower than the agreed minimum by several percentage points creates a conceptual wrinkle. If GILTI is not revised to expand its reach to 15 percent, or the United States does not adopt GLOBE on top of GILTI, low-tax jurisdictions may find themselves in a situation in which simply raising a domestic corporate rate to anticipate GLOBE ends up overshooting both GLOBE and GILTI, and potentially overshooting the latter more than the former.

Multinationals should be expected to exert pressure on low-tax jurisdictions to maintain their competitive advantages by adopting more tailored solutions to GLOBE, and if the spread is material enough, to GILTI as well. Those might include strategies to avoid introducing flat-rate increases or regimes exclusively aimed at soaking up GLOBE-level top-up taxes and instead adopting rules that are more narrowly responsive to residual foreign taxes, including existing CFC taxes, in the United States and other countries.

Because the options for low-tax countries are so dependent on the actions of other countries, a responsive QDMTT would appear to be a dominant strategy. A responsive QDMTT would seek to tax only the amount, and at precisely the rate, that GLOBE, GILTI, and presumably existing CFC rules would otherwise impose — and not a penny more.

It is conceivable that U.S. tax policy observers will call for more FTC limitations or perhaps haircuts to keep the U.S. CFC revenue stream viable in the face of foreign soak-up taxes. It is also possible that low-tax jurisdictions will ignore the ongoing pressures to compete for foreign capital and simply adopt flat-rate QDMTTs even if they overshoot GLOBE, GILTI, or both.

But overall, the interaction of GILTI and GLOBE creates room for some seriously intricate policy maneuvering. The evolution in thinking about soak-up taxes might particularly affect policymakers as they craft strategic responses to the evolving international tax environment.

GLOBE is arguably building a globally iterative and competitive game of minimum taxation. For low-tax jurisdictions, to do nothing is akin to simply feeding the coffers in foreign countries while losing hard-fought battles to lure foreign capital via attractive national tax regimes. It is to be expected that as the pillars settle into place, jurisdictions will continue to develop policy responses, and some will plan highly strategic moves to grab available tax revenues while protecting as much national advantage as they can.


2 Edwin R.A. Seligman, Double Taxation and International Fiscal Cooperation 135 (1928).


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