Taxing The Untaxed: Can QDMTT Catch Digital Profits Better Than GILTI?
- IJLLR Journal
- May 28
- 2 min read
Esakki Ammal K, Research Scholar, Vels Institute of Science, Technology and Advanced Studies (VISTAS), Chennai, India
Dr. Ratheesh Kumar. V.V., Associate Professor, Vels Institute of Science, Technology and Advanced Studies (VISTAS), Chennai, India.
1. Introduction
The rise of highly digitalized multinational enterprises (MNEs) has challenged the traditional international tax system. Such firms often generate large profits with little or no physical presence in a market country, allowing digital profits to “slip through tax nets”. In response, international policymakers agreed in 2021 on a two-pillar solution: Pillar One to allocate new taxing rights to market jurisdictions, and Pillar Two to impose a global minimum corporate tax. Pillar Two’s framework (also called the GloBE Rules) establishes a 15% minimum effective tax rate (ETR) for large MNEs. A key component is the Qualified Domestic Minimum Top- Up Tax (QDMTT), which allows jurisdictions to collect any shortfall up to 15% on local constituent entities’ profits. In parallel, the United States enacted in 2017 the Global Intangible Low-Taxed Income (GILTI) regime, a minimum-tax on foreign earnings of U.S. corporations, intended to curb profit-shifting.
This paper examines whether QDMTTs under OECD Pillar Two can capture untaxed digital profits more effectively than the U.S. GILTI regime. We first review the literature and authoritative sources on these rules. We then analyze their technical mechanisms (including blending rules, ETR calculations, and carve-outs) and compare their coverage. Using hypothetical scenarios of digital platform businesses, we illustrate how each regime would tax mobile digital profits. Finally, we discuss the implications for tax sovereignty, base erosion, and developing country revenues. We conclude by assessing the legal, economic, and policy merits of each approach.
2. Literature Review
The Global Minimum Tax (Pillar Two) and QDMTT: Under the 2021 OECD/G20 agreement, Pillar Two’s Global Anti-Base Erosion (GloBE) Rules require large MNEs to pay a minimum 15% ETR on their profits in each jurisdiction. This is enforced by three interlocking rules: an Income Inclusion Rule (IIR) at the parent level, an Undertaxed Profits Rule (UTPR) as a backstop, and an Optional Qualified Domestic Minimum Top-Up Tax (QDMTT) that jurisdictions may enact domestically. The QDMTT (also called the “Domestic Top-Up Tax”) is defined in Article 10 of the OECD Model Rules (Lautz & Watson 2023). It is a domestic tax applied to each in-scope MNE’s local excess profits, calculated consistently with the Pillar Two base, and top-ups the local tax liability so that the post-exclusion tax rate reaches 15%. In practice, any tax paid under a QDMTT counts dollar-for-dollar as credit against top-up taxes under the IIR/UTPR.
