Key Points
- A QDMTT applies only to multinational groups with consolidated revenue of at least EUR 750M.
- The tax tops up the jurisdictional effective tax rate to 15%; the charge is zero when local ETR already meets that floor.
- By 2025, 22 of 27 EU Member States had enacted both a QDMTT and an Income Inclusion Rule under Directive 2022/2523.
- Entities cannot recognise deferred tax on Pillar Two top-up taxes but must disclose the related current tax charge.
What is the QDMTT?
The QDMTT operates as a first line of collection. When a jurisdiction enacts a qualifying QDMTT, the top-up tax on undertaxed constituent entities is collected domestically rather than by the parent jurisdiction through the Income Inclusion Rule or by other jurisdictions through the Undertaxed Profits Rule. Article 10.1 of the GloBE Model Rules defines the QDMTT as a domestic minimum tax computed using the GloBE income or loss of constituent entities located in the jurisdiction, adjusted for substance-based income exclusions (payroll and tangible asset carve-outs). The jurisdictional effective tax rate is compared against the 15% minimum. If it falls short, the QDMTT equals the difference multiplied by the jurisdiction's excess profit.
For audit purposes, the May 2023 amendments to IAS 12 (paragraphs 4A and 88A–88C) apply. The IASB introduced a mandatory exception: entities neither recognise nor disclose deferred tax assets and liabilities arising from Pillar Two legislation, including QDMTTs. The exception has no stated end date. However, IAS 12.88A requires disclosure of the fact that the exception has been applied, and IAS 12.88C requires disclosure of current tax expense related to Pillar Two income taxes. The auditor tests whether the entity has correctly identified all jurisdictions where a QDMTT applies and whether the current tax provision includes the top-up charge. Completeness of the IAS 12.88A–88C disclosures is a separate audit objective that requires its own procedures.
Worked example: Groupe Lefèvre S.A.
Client: Belgian holding company, FY2025, consolidated revenue EUR 185M (group-wide consolidated revenue EUR 1.2B at the ultimate parent level in France), IFRS reporter. Groupe Lefèvre has two Belgian operating subsidiaries. The Belgian GloBE computation produces a jurisdictional effective tax rate of 12.8% for FY2025, below the 15% minimum. Belgium enacted its QDMTT effective 31 December 2023.
Step 1 — Determine the GloBE income
The two Belgian subsidiaries report combined GloBE income of EUR 14,600,000 after removing items excluded under the GloBE Rules (such as international shipping income and certain pension adjustments). Covered taxes for the jurisdiction total EUR 1,869,000.
Step 2 — Compute the jurisdictional effective tax rate
EUR 1,869,000 divided by EUR 14,600,000 equals 12.8%. The shortfall below 15% is 2.2 percentage points.
Step 3 — Calculate the substance-based income exclusion
The payroll carve-out (5% of eligible payroll costs in Belgium) and the tangible asset carve-out (5% of net book value of eligible tangible assets) total EUR 980,000. Excess profit subject to top-up is EUR 14,600,000 less EUR 980,000, producing EUR 13,620,000.
Step 4 — Compute the QDMTT
The top-up tax percentage of 2.2% applied to excess profit of EUR 13,620,000 produces a QDMTT charge of EUR 299,640. Belgium collects this amount domestically. No additional top-up tax is due from the French parent under the IIR for the Belgian jurisdiction.
Conclusion: the QDMTT charge of EUR 299,640 is defensible because the ETR shortfall is calculated from verified GloBE income and covered taxes, the substance-based exclusions tie to underlying payroll and asset records, the Belgian QDMTT qualifies for safe harbour treatment, and the disclosure requirements under IAS 12.88C are addressed.
Why it matters in practice
- Teams sometimes treat the QDMTT as a deferred tax item and attempt to recognise a deferred tax liability for the expected future top-up. IAS 12.4A explicitly prohibits this. The mandatory exception applies to all Pillar Two income taxes, and the auditor should verify that no deferred tax has been booked for these amounts while confirming the current tax provision is complete.
- The IAS 12.88C disclosure requirement (current tax expense related to Pillar Two) is frequently missed on first-year adoption. Groups with operations in multiple jurisdictions sometimes disclose the aggregate Pillar Two exposure without separately identifying the QDMTT component, which falls short of what the IASB intended.
QDMTT vs Income Inclusion Rule (IIR)
| Dimension | QDMTT | Income Inclusion Rule (IIR) |
|---|---|---|
| Who collects | The jurisdiction where the undertaxed entity is located | The jurisdiction of the parent entity (or intermediate parent) |
| Priority in the GloBE charging order | First: applies before the IIR or UTPR | Second: applies after any QDMTT has been collected |
| Revenue retention | Tax revenue stays in the source jurisdiction | Tax revenue shifts to the parent jurisdiction |
| Safe harbour effect | If qualified, sets the IIR top-up to nil for that jurisdiction | No equivalent safe harbour; the IIR applies to any remaining shortfall |
| Incentive to enact | Strong: jurisdictions retain revenue that would otherwise flow abroad | Moderate: parent jurisdictions collect only what QDMTTs do not cover |
The distinction matters because a jurisdiction that enacts a QDMTT keeps the top-up revenue locally. Without a QDMTT, the parent jurisdiction collects the same amount through the IIR. For the audit team, this determines which entity records the top-up tax charge and in which jurisdiction the current tax provision sits.
Related terms
Frequently asked questions
Does a QDMTT apply to groups below EUR 750M in revenue?
No. The EUR 750M consolidated revenue threshold from GloBE Model Rules Article 1.1 applies equally to QDMTTs. A group must meet this threshold in at least two of the four fiscal years immediately preceding the tested year. If the group falls below the threshold, neither the QDMTT nor any other Pillar Two top-up tax applies.
How do I audit the QDMTT safe harbour qualification?
Obtain evidence that the jurisdiction's QDMTT has passed the OECD peer review. The review tests the Accounting Standard (GloBE income computed from an acceptable financial reporting framework), the Consistency Standard (all GloBE adjustments included in domestic legislation), the Administration Standard (adequate monitoring and reporting), and any additional conditions imposed by the Inclusive Framework. If safe harbour applies, the top-up tax under the IIR is deemed nil for that jurisdiction.
Do I need to recognise deferred tax on a QDMTT?
No. The May 2023 amendments to IAS 12 introduced a mandatory exception (IAS 12.4A) from recognising and disclosing deferred tax assets or liabilities arising from Pillar Two legislation. The exception covers QDMTTs specifically. The entity must disclose that the exception has been applied (IAS 12.88A) and report the related current tax expense (IAS 12.88C).