Global Anti-Base Erosion (GloBE) Rules, 2023: An Introduction

Why the Digitalised Economy Needed GloBE Rules

Digital business grew faster than the old tax rules could follow. The OECD and the G20 wrote the Global Anti-Base Erosion (GloBE) Model Rules to close the gap. The work sits under the Base Erosion and Profit Shifting (BEPS) project. The aim is simple. A multinational group should pay tax on its profit in the places where it earns that profit. The rules also narrow the room to move profit into a low-tax or no-tax country.

A digital group can sell into a country with no office, no staff and no factory there. The old rules test for a physical place, so they often find nothing to tax. The GloBE rules look at the group's accounts instead. Two rules carry the weight: the Income Inclusion Rule (IIR) and the Undertaxed Payments Rule (UTPR). Together they set a floor under the tax a group pays on its profit, wherever that profit is booked.

Context and Justification

Four problems pushed the reform:

1. Shift to digitalisation: A business can now reach customers in a country without a building there. Tax rights still follow bricks and mortar, so a large market can collect very little.

2. Base erosion and profit shifting: Groups use gaps and mismatches between tax systems. They move profit to a country with little real activity and a low rate. The country where the work is done loses the base.

3. Tax competition: Countries offer targeted regimes to pull in mobile profit. Each offer makes the next one harder to refuse. The result is a race that leaves every country with a thinner base.

4. A common method: Without one agreed measure, groups face a patchwork of tests. Compliance costs rise. Tax offices struggle to compare outcomes. A single method gives both sides something to work with.

Mechanics and Implementation

The rules work through two instruments:

- Income Inclusion Rule (IIR): The parent adds its share of the profit of a low-taxed group company to its own return. It then pays a top-up tax on that profit. The IIR is the main tool, and it applies first, at the top of the group.

- Undertaxed Payments Rule (UTPR): The UTPR catches what the IIR leaves. Where a group has not paid the floor rate through the IIR, other group companies in other countries take an extra charge. The two rules together reach the whole group.

Both rules work country by country. The group takes the tax it paid on its profit in a country and divides it by that profit. The result is the effective tax rate (ETR) for that country. If the rate falls under the agreed minimum of 15%, a top-up tax brings it up. The country where the profit is booked keeps first claim. That keeps double taxation in check.

Challenges and Considerations

Three practical problems remain:

- Complexity: The rules need data from every country in which the group operates. National systems collect and define that data in different ways. Building one clean set of figures takes time and controls.

- Economic effect: A higher tax bill changes investment choices. Groups with large digital operations feel it most. They may move assets, people and rights.

- Developing countries: The rules assume a tax office can read group accounts and test them. Not every one can do that yet. Help with skills decides whether the gains reach them.

Conclusion

The GloBE rules are a framework, not a final answer. Governments will keep adjusting them, and groups will keep testing them. The next pieces in this series take the rules in order. The first goes through scope, Sections 1.1 to 1.5, and sets out which groups are caught and when. This note rests on the GloBE Model Rules text published by the OECD/G20 under the BEPS project, with a research cut-off of 18 October 2026.