Subject To Tax Rule (STTR) Is Coming: What Businesses Need To Know About The New Treaty-based Taxing Right

July 2026 – Countries have started implementing the OECD’s Subject to Tax Rule (STTR) through the recently signed Multilateral Convention.

Unlike the OECD’s Global Anti-Base Erosion (GloBE) Rules, which apply to large multinational groups, the STTR operates through tax treaties and grants source countries an additional taxing right when specific payments between related parties are subject to a tax rate below a minimum threshold.

1. How does the STTR work?

The STTR allows the source jurisdiction to impose an additional tax on certain cross-border payments when the relevant item of income is subject to a tax rate below 9% in the jurisdiction where the recipient is resident. In other words, the STTR allows the source jurisdiction to “top up” taxation to the 9% minimum level. If the source jurisdiction already levies withholding tax on the payment under the applicable treaty, only the remaining difference may generally be collected under the STTR.

2. Which payments are covered?

The STTR applies to a broad range of intra-group payments, including interest; royalties; payments for distribution rights; insurance and reinsurance premiums; financial guarantee fees and other financing fees; payments for the use of industrial, commercial, or scientific equipment; and service payments.

3. Key exclusions

The STTR provides for a number of exclusions (e.g., payments made to individuals, to qualifying pension funds, etc.) In addition, the STTR generally applies only where covered payments between related parties exceed EUR 1 million per year (or EUR 250,000 in certain lower-GDP jurisdictions)

4. When will the STTR apply?

The Multilateral Convention modifies covered tax treaties through the inclusion of STTR provisions. The rule becomes effective for a covered treaty from the beginning of a fiscal year following a six-month period after the Convention is in force for both contracting jurisdictions.

5. Takeaway

The STTR represents an important component of the OECD Pillar Two framework. By allowing source jurisdictions to tax certain low-taxed outbound payments up to a minimum 9% level, the rule is expected to reshape cross-border financing and licensing and service arrangements and increase the importance of treaty monitoring and tax governance for multinational groups. While often discussed alongside the GloBE Rules, the STTR is a distinct treaty-based mechanism that focuses on the tax rate applicable to specific categories of income rather than on the Pillar Two effective tax rate calculation.