In Homer’s The Odyssey, Odysseus sailed through unfamiliar seas for 20 years in his quest to return home to Ithaca. Along the way, he encountered a cyclops, sirens, storms, witches, and countless detours that threatened to pull him away from his destination. But despite these hurdles, his objective remained unchanged: finding his way back home.

The Philippines now finds itself embarking on a similar journey in the world of international taxation.

As global tax rules continue to evolve under the Organisation for Economic Co-operation and Development’s (OECD) Global Minimum Tax framework, countries have no other choice but to ride the wave of international tax reforms involving transfer pricing and taxation of multinational enterprises (MNEs) around the world.

Recent developments suggest that the Philippines is preparing for its own voyage through these uncharted waters. Earlier this year, Bureau of Internal Revenue (BIR) Commissioner Charlito Mendoza met with the Department of Finance (DoF) and the Fiscal Incentives Review Board (FIRB) to discuss the features of the draft bill concerning the implementation of the Qualified Domestic Minimum Top-Up Tax (QDMTT).

While the term may sound highly technical at first glance, the underlying principle of QDMTT is simple: if income is earned in the Philippines, the corresponding tax revenue should remain in the Philippines. To better understand how to achieve this, let us chart a course and delve deeper into the Philippines’ QDMTT journey that lies ahead.

SETTING SAIL: WHAT IS QDMTT?
A QDMTT is a mechanism arising from the OECD’s Pillar Two Global Minimum Tax initiative, which seeks to ensure that large MNE groups pay an effective tax rate of at least 15% from their global operations.

For example, let’s say a multinational enterprise that operates a manufacturing facility in the Philippines reports P1 billion in income from its Philippine operations. Ordinarily, domestic corporations are subject to a corporate income tax rate of up to 25%. However, certain enterprises may enjoy incentives such as income tax holidays, a 5% special income tax rate, or enhanced deductions. As a result, the company’s effective tax rate may actually differ from the statutory income tax rate.

Going back to our example, let’s say the company ultimately pays only P100 million in income tax, equivalent to an effective tax rate of 10%. Under the Global Minimum Tax framework, the company is expected to pay taxes equivalent to at least 15% of its income, or P150 million. This creates a P50 million gap between the tax actually paid and the minimum tax contemplated under the OECD’s Pillar Two initiative. This amount represents the top-up tax that may be imposed under a QDMTT regime.

THE VOYAGE BEGINS: WHY QDMTT?
Under the OECD Pillar Two rules, the P50 million gap in our example does not simply get lost at sea. In the absence of a qualifying domestic top-up tax in the Philippines, another jurisdiction, often the country where the multinational group’s parent company is located, may have the right to collect the additional tax. In other words, the MNE would still end up paying a total of P150 million in taxes, but part of that amount will be paid outside the Philippines.

By adopting a QDMTT, the Philippines would have the first opportunity to impose and collect the P50 million top-up tax itself. As such, QDMTT does not necessarily create a new tax burden for affected MNEs. Rather, it determines whether the top-up tax arising from Philippine operations remains in the Philippines or ultimately finds its way to another jurisdiction. Put simply, the tax will be paid either way. QDMTT simply determines which country gets to collect it.

In our example, thanks to QDMTT, the Philippines would be entitled to collect the entire P150-million tax arising from the MNE’s Philippine operations. This reflects the government’s broader objective of protecting the country’s tax base and ensuring that Philippine economic activity translates into Philippine tax revenue.

KEEPING PACE: REGIONAL QDMTT ADOPTION
Across Southeast Asia, several jurisdictions have already begun conforming to the Global Minimum Tax regime. Vietnam was among the early adopters, implementing its QDMTT in 2024 to ensure that top-up taxes arising from investment incentives remain within its borders. Malaysia and Singapore followed suit with their own top-up tax regime in 2025. Meanwhile, Thailand continues to advance its own OECD Pillar Two initiatives, signaling that the regional tide is steadily turning toward full QDMTT adoption.

This growing momentum places increasing pressure on the Philippines to protect its taxing rights and ensure it does not fall behind neighboring economies that have already embarked on their own QDMTT journeys.

WHO MUST BOARD: COMPANIES COVERED BY QDMTT
Fortunately, not every Philippine taxpayer will be required to embark on this voyage.

The scope of the proposed regime is limited to the largest MNE groups, specifically those with global annual revenues of at least 750 million euros (approximately P54 billion) in at least two of the four immediately preceding fiscal years. Hence, small and medium-sized enterprises, as well as most purely domestic businesses, are generally expected to remain outside the reach of the proposed rules.

That said, taxpayers should be careful not to focus solely on the revenues of the local entity. It is worth noting that the 750 million-euro threshold is not measured based solely on the revenue of the Philippine subsidiary, but on the consolidated revenue of the entire multinational group. As such, a Philippine company that generates only a fraction of the group’s global revenue may still fall within the scope of QDMTT if it forms part of a multinational organization that meets the threshold.

CHARYBDIS VS  SCYLLA: KEEPING FOREIGN INVESTORS VS TAX REVENUE PROTECTION
Much like how Odysseus was forced to choose between sailing through the whirlpool Charybdis or passing by the six-headed monster Scylla, policymakers today face a similar dilemma in weighing the pros and cons of QDMTT.

In previous years, the Philippines has relied on tax incentives to attract foreign investment, generate employment, and stimulate economic growth. However, the emergence of the Global Minimum Tax framework has introduced a new consideration. If the effective tax rate of a covered MNE falls below 15%, a top-up tax may arise regardless of where the business operates, potentially diluting the benefit of preferential tax rates that helped attract foreign investments in the first place.

On the other side of the coin, the absence of QDMTT may allow significant tax revenues to drift beyond Philippine shores. In fact, last September, the DoF informed Congress that the Philippines was foregoing more than P50 billion in tax collections annually due to the absence of a domestic top-up tax.

The challenge, therefore, extends beyond merely attracting investments. The BIR and the DoF must also ensure that the country’s incentive schemes remain competitive without ceding valuable tax revenue to other jurisdictions. QDMTT may offer a path toward that objective, but its success will ultimately depend on effective implementation, providing clear guidance to taxpayers, and striking the proper balance between investment promotion and revenue protection.

REACHING ITHACA: WHAT HAPPENS NEXT?
While the rationale behind QDMTT may be clear, the proposal has not yet completed its legislative voyage. Although the DoF has been actively advocating for its passage and the BIR has begun preparing for its possible implementation, taxpayers are still awaiting greater clarity on the finer details of the proposed regime. Questions relating to administrative readiness, compliance requirements, and the interaction of QDMTT with existing incentive rules will likely become clearer only as the proposal progresses through the legislative process.

For now, the QDMTT bill remains under congressional consideration, with the government continuing to push for its passage by 2027. In the meantime, affected MNEs should closely monitor developments and begin assessing the potential implications of QDMTT on their operations. Much like Odysseus’ journey home, the Philippines may still face several hurdles before reaching its destination. But the ship’s anchor has been lifted, and the course has been set with a clear objective in mind: ensuring that tax revenue generated in the Philippines ultimately finds its way home.

Let’s Talk Tax is a weekly newspaper column of P&A Grant Thornton that aims to keep the public informed of various developments in taxation. This article is not intended to be a substitute for competent professional advice.

 

Patrick Manuel R. Olarte is a manager from the Tax Advisory & Compliance practice area of P&A Grant Thornton, the Philippine member firm of Grant Thornton International Ltd.

pagrantthornton@ph.gt.com