Pillar 2

The safe harbour and penalty relief under the ‘Minimum Tax Act 2024’ (Pillar 2)

Dave Rimmelzwaan
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On 15 December 2022, the OECD published the framework for the safe harbours and penalty relief under the proposed ‘Minimum Tax Act 2024’ (Pillar 2). The framework is an extension to the ‘Minimum Tax Act 2024’ (Pillar 2) which aims to ensure that multinational enterprises will be subject to a minimum tax rate starting from 1 January 2024. The safe harbours and penalty relief framework aims to lower the compliance burden for companies that operate in high-tax and low-risk jurisdictions.


In order to mitigate the acute compliance burden that arises from the Minimum Tax Act 2024, the OECD has published its ‘safe harbours and penalty relief’ document.  

The document includes a transitional safe harbour, a permanent safe harbour and a transitional penalty relief regime.  

Furthermore, the OECD is also working on a Qualified Domestic Minimum Top-up Tax (QDMTT) safe harbour that would provide compliance simplifications for MNEs operating in jurisdictions that have adopted a QDMTT (the Netherlands have adopted a QDMTT). The QDMTT allows the Netherlands to tax any Top-up Tax from any Dutch low-taxed entities. 

The Dutch government has not yet prepared a (draft) legislative proposal that covers these safe harbour regulations. As such, this Memo focusses only on the OECD framework publishment. 

Transitional Safe Harbour  

The Transitional CbCR (country-by-country reporting) Safe Harbour is designed to provide transitional relief for MNE Groups in the initial years during which the minimum tax act 2024 comes into effect. The transition period covers all of the fiscal years beginning on or before 31/12/2026 but does not include fiscal years that end after 30/6/2028. If an MNE Group has not applied the Transitional CbCR Safe Harbour with respect to a jurisdiction in a Fiscal Year in which it is subject to the GloBE Rules, the MNE Group cannot qualify for that safe harbour for that jurisdiction in a subsequent year (“once out, always out” approach).   

Under the Transitional Safe Harbour, the top-up-tax for a jurisdiction is deemed to be zero during the transition period if one of the following three tests is met in that specific jurisdiction:  

De minimis test (transitional period) 

The minimis test is met if from the CbC-report follows that the average GloBE Revenue of a jurisdiction is less than EUR 10 million, and the Average GloBE income is less than EUR 1 million or the jurisdiction has an average GloBE loss. 

Simplified ETR test (transitional period) 

The ETR (effective tax rate) test is met if the MNE Group has a Simplified ETR that is equal to or greater than the Transition Rate in such jurisdiction for the Fiscal Year.  

The simplified ETR of a jurisdiction is calculated by dividing the jurisdiction’s simplified covered taxes by the jurisdiction’s profit (loss) before income tax as reported on the MNE’s group financial statement that is used for CbCr-reporting. The jurisdiction’s Simplified Covered Taxes consist of the taxes based on the Qualified Financial Statements, after elimination of Non-Covered Taxes and uncertain tax positions.  

The Transition rates are: 

  • 15% for Fiscal Years beginning in 2023 and 2024; 
  • 16% for Fiscal Years beginning in 2025, and; 
  • 17% for Fiscal Years beginning in 2026. 

Routine profits test (transitional period) 

The routine profits test refers to the substance focused carve-out for calculation of the top-up tax under Pillar 2.  

The substance-based income exclusion is calculated as a percentual mark-up based on tangible assets and payroll costs. If the profit (loss) according to the CbCr-reporting is equal or lower than the substance-based income exclusion, it can be assumed that all income is related to the substance and that as a result a top-up tax is unnecessary. As such, when a company with employees and tangible assets is loss-making, the routine profits test is met consequentially. 

Permanent Safe Harbour 

Where an MNE’s operations in a jurisdiction do not meet the requirements of a transitional safe harbour, they may still qualify for the terms of a permanent safe harbour. Naturally, the permanent safe harbour rules are also applicable after the transitional period.  

A tested jurisdiction meets permanent safe harbour status when it passes one of the following tests:  

Routine profits test  

The routine profits test compares a Jurisdiction’s SBIE amount under the GloBE Rules to such jurisdiction’s Profit (Loss) before Income Tax as reported in such MNE’s Qualified CbC Report. If a jurisdiction’s SBIE amount equals or exceeds its Profit (Loss) before Income Tax, it means that it is likely that little (or no) excess profits arise in such jurisdiction, and the Tested Jurisdiction would   qualify for the safe harbour. 

De minimis test 

The average GloBE revenue of such jurisdiction Income as determined under the simplified income calculation is less than EUR 10 million, and the profit (loss) before Income Tax is less than EUR 1 million or the jurisdiction has an Average GloBE Loss. 

ETR test  

If the effective tax rate of the jurisdiction as determined under the simplified income and tax calculation, is at least 15% as determined in accordance with the GloBE Rules.i 

Difference Transitional and Permanent Safe Harbour 

The difference between the permanent and transitional period tests is that the permanent test are applied using GloBE rules. These consist of simplified calculations of income revenue and tax calculations. On the contrary, the transitional tests use CbCR and qualified financial statement data. In addition, if an MNE does not qualify for the transitional Safe Harbour in a given year,  it cannot be applied anymore in the years after.  

Transitional penalty relief 

During the transition period, no penalties or sanctions should apply in connection with the filing of a GloBE information return where a tax administration considers that an MNE has taken “reasonable measures” to ensure the correct application of the GloBE Rules. A tax administration may consider that an MNE has taken reasonable measures where the MNE can demonstrate that it has acted in good faith to understand and comply with the relevant domestic application of the GloBE Rules and the qualified domestic minimum top-up tax. 

Formal procedure 

An MNE that qualifies for the safe harbour rules is still subject to the GloBE Rules and the safe harbour does not discharge the MNE Group from complying with group-wide GloBE requirements. For example, an MNE Group would still need to prepare and file its GloBE Information return, including the information concerning the application of the safe harbour in a jurisdiction where applicable.  

Way forward  

Of course we can assist you with the obligations arising from the Dutch Minimum Tax Act 2024 and help you with assessing whether the safe harbour rules or transitional penalty relief are applicable. We will keep you informed on any further developments and can help you in the complete process. Please contact us if you have any further questions. 


CbCr Country-by-Country-reporting 

ETR Effective Tax Rate  

GloBE Global Anti-Base Erosion 

MNE Multinational Enterprise 

OECD Organisation for Economic Co-operation and Development 

QDMMT Qualified Domestic Minimum Top-up Tax 

SBIE Substance Based Income Exclusion