QDMTTs Leave Geographic Disparity Between Increased Pillar Two Costs and Revenues

For the better part of the last decade, the global minimum tax, or Pillar Two, has dominated international tax policy discussions. Developing out of the Base Erosion and Profit Shifting (BEPS) Project at the Organisation for Economic Co-operation and Development (OECD), Pillar Two’s main objective is to ensure that multinational enterprises (MNEs) with a consolidated group revenue of over EUR 750 million pay an effective tax rate of at least 15 percent in each jurisdiction where they earn profit. Some portion of the Pillar Two model rules have been adopted by several dozen countries around the world, but, importantly, not by other large economies such as the United States, India, or China. This especially puts European MNEs at a competitive disadvantage vis-à-vis jurisdictions without a domestic minimum tax system. Our estimates show that the additional compliance costs for affected European MNEs amount to EUR 1.2 billion (up to EUR 2.0 billion) and total recurring costs amount to EUR 517 million p.a. (up to EUR 865 million p.a.). Due to the incentive for jurisdictions to implement a qualified domestic minimum top-up tax (QDMTT), Pillar Two leaves a geographic asymmetry. Additional tax revenues would predominantly accrue to low-tax jurisdictions, with high-tax jurisdictions receiving little to no increase. At the same time, it is likely that MNEs expense compliance costs in the jurisdictions where they are headquartered, often high-tax jurisdictions. Furthermore, Pillar Two incentivizes jurisdictions to move from competition on tax rates to less transparent subsidies, which could also result in less disposable tax revenue. The combination of losing international competitiveness, increasing compliance costs for firms and tax authorities, and the lack of significantly more revenue is forcing some Member States to reconsider the policy altogether.

Bray, Sean, Daniel Bunn, Johannes Gaul and Christoph Spengel (2025), QDMTTs Leave Geographic Disparity Between Increased Pillar Two Costs and Revenues, ZEW policy brief No. 25-13, Mannheim