What Is Top-Up Tax?
Top-Up Tax is a global minimum tax charge under which large multinational groups pay extra tax where a jurisdiction's effective rate falls below the minimum.
Also known as: Pillar Two Top-Up Tax, Minimum Top-Up Tax.
How Top-Up Tax works
Top-Up Tax is the additional amount collected under the OECD Pillar Two framework when a large multinational group's effective tax rate in a jurisdiction falls below the minimum, which the EU Directive sets at 15 percent for groups with annual revenue of EUR 750 million or more. The charge is calculated jurisdiction by jurisdiction on adjusted accounting profits. The ultimate parent usually pays under the income inclusion rule, while a qualified domestic minimum top-up tax or the undertaxed profits rule may collect it first or as a backstop. Implementation dates and details vary by country.
Top-Up Tax vs Global Minimum Tax
Unlike the global minimum tax, which is the overall policy framework, top-up tax is the specific amount computed and collected when a jurisdiction's effective rate falls short.
Example
Illustrative example: A group above the revenue threshold has a subsidiary in Country A, where an incentive brings the effective tax rate well below the minimum. The parent in Country B calculates the shortfall on the subsidiary's adjusted profits and pays the difference as top-up tax, unless Country A collects a domestic minimum top-up tax first.
Common misconception
Myth: Top-up tax makes every low-tax company structure pay at least the minimum rate.
Reality: Top-Up Tax under Pillar Two applies only to groups above the revenue threshold, so small companies remain subject to ordinary domestic rules, CFC rules and residence-country taxation.
Frequently asked questions
Who pays top-up tax under Pillar Two?
Top-Up Tax is generally paid by the ultimate parent entity under the income inclusion rule, unless the low-tax jurisdiction collects a qualified domestic minimum top-up tax or another group entity pays under the undertaxed profits rule.
Does top-up tax apply to small businesses?
Top-Up Tax under the EU Pillar Two Directive applies to groups with annual revenue of EUR 750 million or more in at least two of the four preceding years, so most small businesses fall outside scope.
Related terms
- Global Minimum Tax — Framework under which top-up tax arises
- Pillar Two — OECD pillar setting the minimum rate
- Undertaxed Payment Rule (UTPR) — Backstop rule collecting remaining top-up tax
Related guides
- Global tax reform and US digital nomads — Context on global minimum tax reform
Sources
Last verified: 2026-10-09. This entry is general information, not tax or legal advice; rules vary by country and change over time.
