Global Minimum Tax rules in 2025

The OECD Pillar Two rules (also known as the Global Minimum Tax), where implemented by a national jurisdiction, require multinational enterprises (MNEs) with a consolidated group turnover of more than €750 million to calculate the effective tax rate in each jurisdiction in which it operates. To the extent that that effective tax rate is less than 15%, the rules can require a top-up tax to be paid in the relevant jurisdiction or, where that jurisdiction has not implemented Pillar two rules, another jurisdiction in the group can impose an equivalent top-up amount. Whilst this is an international measure agreed at the level of the OECD, it requires implementation by each country under its own domestic tax legislation.

Many jurisdictions introduced their domestic Pillar Two rules in 2024. Some jurisdictions that have not historically imposed a corporate income tax (such as Guernsey, the Isle of Man, Jersey, and the UAE), have announced their intention to introduce a minimum tax rate. The OECD publishes guidance setting out a ‘central record’ (or list) of countries and national legislation that have ‘qualified’ Pillar two rules. This can be accessed here.

There is an exemption for international shipping income, principally being income derived from the operation of ships for passenger or cargo transportation internationally and income incidental to that. However, this exemption only applies where the strategic or commercial management of the relevant ships is carried out in the jurisdiction where the profits arise. This is not how many shipping companies have historically operated as the profits from operating ships have frequently arisen in jurisdictions other than where the management is carried out. In order to qualify for the Pillar Two shipping exemption, shipping companies have been aligning their ownership and management activities. As the criteria for the Pillar Two shipping exemption broadly align with the requirements of many tonnage tax regimes, we have seen shipping companies reorganising their business structures to align ownership and management and bring activities within tonnage tax regimes. This means that the competitiveness of the different tonnage tax regimes is becoming increasingly important to those jurisdictions wishing to build or maintain their maritime experience.

2025 was expected to be the year when the Pillar Two rules would begin to bed in, following a relatively rushed implementation in many jurisdictions. However, the first test of that process has already arisen following President Trump’s issuance of an executive order on 20 January 2025 showing his intention to withdraw the US from Pillar Two. The regime is continuing to have its influence across the world as can be seen by the actions of many former low-tax jurisdictions; however, without the participation of the US, it can never be a truly global regime. Nonetheless, shipping companies across the world will need to continue to monitor the implementation of these rules and the requirements of the various tonnage tax regimes to which they are increasingly subject.

If you would like to find out more about the Pillar Two rules, please contact us.