OECD Pillar Two Global Minimum Tax Implementation Stalls in Knesset Committee
Implementation of the OECD's Pillar Two global minimum tax in Israel stalls in the Knesset Finance Committee amid political disputes, threatening high-tech investments and regulatory certainty.
The implementation of the Pillar Two global minimum tax mechanism, formulated by the OECD, is facing delays in the Knesset Finance Committee. The mechanism imposes a minimum effective corporate tax rate of 15% on multinational corporations with annual revenues of at least EUR 750 million. Although the law was approved by the Knesset about a year ago and entered into force at the beginning of 2026, the supplementary regulations required for its actual implementation remain unapproved due to opposition from opposition MKs.
According to opposition sources, approval of the regulations is being made conditional on the release of Section 46 tax credit approvals for some 300 to 400 non-profit organizations that have been waiting for months—an issue delayed in the committee due to resistance from ultra-Orthodox factions. Professional staff at the Ministry of Finance warn that the delay leaves technology corporations operating in Israel in regulatory limbo, potentially harming Israel's standing with the OECD and its attractiveness as a high-tech investment destination. The ministry estimates that about 150 multinational companies are affected by the legislation.
Accounting Pressures and Retroactive Corrections
Ministry of Finance officials told Globes that "a delay in obtaining 'qualified' status by the end of 2026 could force companies to make accounting provisions in their financial statements, generating reports to investors that reflect the risk that the tax reliefs will not pass."
Officials added that "late approval of the regulations could lead to unnecessary complexity, involving retroactive corrections of financial statements in 2027."
Last year, the Ministry of Finance promoted the alignment of the local tax system with global standards and the adoption of the OECD minimum tax mechanism. Pillar Two is part of the OECD's BEPS initiative, involving about 140 countries, aimed at ending tax competition where governments lower rates to attract foreign firms.
Local Impact and the QDMTT Mechanism
The turmoil does not affect all high-tech companies in Israel. Most local firms, operating for example in Tel Aviv without preferred enterprise status, pay a standard and full corporate tax rate of 23% and remain unaffected.
Under the framework formulated by the Tax Authority and the Ministry of Finance, starting in 2026 Israel will adopt only the QDMTT (Qualified Domestic Minimum Top-up Tax) mechanism. Although Israel's standard corporate tax stands at 23%, many multinationals have enjoyed reduced rates of 6% to 12% under the Encouragement of Capital Investments Law.
"The ministry submitted an urgent request to the Knesset Finance Committee to approve the minimum corporate tax regulations (Pillar Two). The regulations are required to approve the complementary tax legislation in Israel as 'qualified' (QDMTT)," the Treasury stated.
Under the new mechanism, if an international company pays an effective tax rate of less than 15% in Israel, the Tax Authority will collect a top-up tax bringing it precisely to the 15% threshold. OECD rules dictate that if Israel fails to collect the difference, the multinational's parent country will collect the tax itself, ensuring revenues remain in Israeli coffers.
