Qualified Refundable Tax Credits (QRTC) Will Transform the Global Tax Incentive System

Qualified Refundable Tax Credits (QRTC) are rules introduced under Pillar Two of the BEPS Action Plan, also known as the Global Minimum Tax. We previously discussed this in our BEPS 2.0 articles, and this piece will focus specifically on QRTC.

According to page 65 of the Global Minimum Tax Model Rules, a QRTC is defined as a refundable tax credit designed in the following manner: A constituent entity must pay or provide in cash or cash equivalents within four years from the date it meets the eligibility criteria set by the jurisdiction granting the credit. Partial refundable tax credits also qualify as QRTC, provided they are paid or provided in cash or cash equivalents within the same four-year timeframe. QRTC does not include any amounts that can be credited or refunded under Qualified Imputation Tax or Disqualified Refundable Imputation Tax.

In short, QRTC refers to tax incentives provided to taxpayers by various countries, contingent upon those countries making cash or cash-equivalent payments to taxpayers within four years of meeting the eligibility criteria.

The importance of QRTC lies in the fact that under Section 3.2.4 of the Global Minimum Tax Model Rules, QRTC is included in the GloBE income of constituent entities (i.e., it increases the total profits of the constituent entity), while non-QRTC tax benefits cannot be counted towards GloBE income; instead, they are deducted from covered taxes. As a result of the global minimum tax rules, the adverse impact of the global minimum tax on taxpayers receiving QRTC will be significantly less than for those receiving non-QRTC benefits. In other words, taxpayers will not see a substantial increase in their global minimum tax liability just because they receive tax incentives. Thus, for multinational enterprises facing the global minimum tax, whether a tax incentive qualifies as QRTC will become crucial, prompting more countries to design tax incentives that meet QRTC criteria to ensure that multinational enterprises can genuinely benefit from these incentives.

In this article, we will explore the impact of QRTC on global minimum tax liabilities, using Singapore as an example to illustrate how the country leverages QRTC to optimize its tax incentive policies.