About the tax

What is the global minimum tax

The tax ensures certain qualifying MNE groups are subject to a minimum effective tax rate on their profits in every jurisdiction they operate.

This tax essentially operates as a top-up tax to ensure that a minimum effective tax rate of 15% applies to the profit of qualifying MNE groups, in every jurisdiction in which they operate.

Background of the tax

Canada is a member of the Organisation for Economic Co-operation and Development (OECD) and Group of 20 Inclusive Framework on Base Erosion and Profit Shifting (the Inclusive Framework). As a member, Canada joined a two-pillar plan for international tax reform. Pillar Two is a key part of the two-pillar plan.

Pillar Two

Pillar Two consists of rules that are generally intended to be implemented through changes to each country’s domestic tax laws. Members of the Inclusive Framework that implement Pillar Two are required to do so in a way that is consistent with the outcomes from:

• Global Anti-Base Erosion (GloBE) Model Rules
• Commentary to the GloBE Model Rules
• Administrative Guidance on the GloBE Model Rules.

These materials are approved by the Inclusive Framework and are published by the OECD.

The Global Minimum Tax Act

The Global Minimum Tax Act was enacted in 2024 and applies to qualifying MNE groups for fiscal years that begin on or after December 31, 2023.

Part 2 of the Act implements the Pillar Two Income Inclusion Rule (IIR) in the GloBE Model Rules. The IIR imposes liability for top-up tax on certain persons regarding a qualifying MNE group.

Part 3 of the Act implements the domestic minimum top-up tax as provided in the GloBE Model Rules and further elaborated in the Commentary. It allows Canada to retain taxing rights on income sourced in Canada. It ensures any qualifying MNE groups with Canadian entities will pay the minimum rate of 15% tax in Canada with respect to those entities.