Pillar 2 Dashboard: Isle of Man

On June 19, 2025, the updated version of the Global Minimum Tax (Pillar Two) Order 2024 was published. 

On November 21, 2024, the Isle of Man Parliament passed the Global Minimum Tax (Pillar Two) Order 2024

On October 24, 2024, the Isle of Man income tax division published an update on the implementation of the GloBE rules in a letter sent to all Isle of Man entities likely to be within the scope of the new rules.

The draft legislation is available and will be considered by the Parliament in November 2024.

The Isle of Man is applying an IIR and a QDMTT. The legislation transposes the GloBE model rules and commentary/AG into domestic law with some modifications.

On October 24, 2024, the Isle of Man issued a draft law (‘the Global Minimum Tax (Pillar Two) Order 2024’) to transpose the OECD Model Rules (and accompanying guidance) into domestic law. This was approved by Parliament on November 21, 2024.

Section 7 of the Law states that its purpose is to give legal effect in the Isle of Man to the GloBE Rules to implement:

• an income inclusion rule (IIR) (referred to in the Law as a Multinational Top-up Tax or ‘MTUT’) that is intended to be a Qualified IIR;

• a minimum tax that is intended to be a Qualified Domestic Minimum Top-up Tax (QDMTT) (referred to in the Law as a Domestic Top-up Tax or DTUT).

The Law does not give legal effect in the Isle of Man to the under-taxed profits rule (‘UTPR’).

The provisions of the Law apply to fiscal years that commence on or after January 1, 2025.

On June 19, 2025, the updated version of the Global Minimum Tax (Pillar Two) Order 2024 was published.

GLOBE APPLICATION

General

The approach taken in the Law is to incorporate by reference the OECD Model Rules and accompanying Commentary/Guidance to effectively transpose the OECD Rules into domestic law (subject to specified amendments).

It achieves this in a number of ways:

Section 4 of the Law states that any reference in square brackets in the OECD GloBE Rules that invites the insertion of the name of an implementing jurisdiction must be construed as if those square-bracketed words were replaced with “the Isle of Man”.

Section 5(2) of the Law states that the provisions of the Law on the IIR and QDMTT must be read and construed in accordance with the GloBE Rules, the GloBE Commentary and the Administrative Guidance. This is reiterated in Section 7(4) which states that the provisions of the GloBE Rules must be applied consistently with the most recent:

• GloBE Commentary;
• Administrative Guidance; and
• Safe Harbours,

that have been applied in the Isle of Man before the start of the Fiscal Year that is being considered. The OECD GloBE rules apply to the extent that any provision of those Rules is not expressly stated in the Law to be inapplicable.

Section 24 states that each Domestic Constituent Entity/JV is liable to pay MTUT under the IIR determined in accordance with the GloBE Rules for each Fiscal Year of the Qualifying MNE Group that includes the Domestic Constituent Entity.

The only aspects of the OECD Model Rules that are not applicable for the IIR/MTUT calculation are the provisions relating to the UTPR (including the exclusion for MNE Groups in the initial phase of their international activity).

Administrative Guidance

The OECD Commentary, including OECD Administrative Guidance is taken into account under Section 7 of the law when applying the Pillar Two GloBE Rules.

The original Law included the OECD Administrative Guidance up to and including the June 2024 OECD Administrative Guidance. The updated Law amends the definition of Administrative Guidance in Section 3(2) of the law to also include:

• January 2025 Central Record of Legislation with Transitional Qualifying Status (applies in respect of any Fiscal Year that begins on or after June 17, 2025 and is deemed to have been in operation from the beginning of any Fiscal Year that began on January 1, 2025 or any subsequent day prior to June 17, 2025)

• January 2025 OECD Administrative Guidance on Article 8.1.4 and 8.1.5 of the Model Rules

• January 2025 OECD Administrative Guidance on Article 9.1 of the Model Rules
The January OECD Administrative Guidance on Articles 8.1.4, 8.1.5 and 9.1 applies in respect of any Fiscal Year beginning on or after June 17, 2025.

Safe Harbour and Penalty Relief Guidance

Section 7(4) of the law states that in applying the IIR(MTUT) and QDMTT (DTUT) the provisions of the GloBE Rules must be applied consistently with the most recent:

(a) GloBE Commentary;

(b) Administrative Guidance; and

(c) Safe Harbours,

that have been applied in the Isle of Man before the start of the Fiscal Year that is being considered.

Safe Harbours are defined as an exception provided in Article 8.2.1 of the GloBE Rules whose design and eligibility conditions have been approved by the Inclusive Framework and set out in

– The OECD Safe Harbours and Penalty Relief Rules

– Administrative Guidance on the GloBE Rules; and

– Any additional similar document published by the Inclusive Framework that has been introduced in the Isle of Man by a Manx enactment.

Therefore all the OECD Safe Harbours should be applicable for the IIR/MTUT.

ELECTIONS

Elections in the OECD Model Rules

As the law transposes the OECD Model Rules into domestic law, all of the elections included in the OECD Model Rules are provided domestically, including:

-Excluded Entity Election

-Stock-Based Compensation Election

-Election to use the Realization Method

-Election to Spread Capital Gains

-Consolidation Election

-Unclaimed Accrual Election

-GloBE Loss Election

-Prior Year Adjustment Election

-De minimis Election

-Substance-Based Income Exclusion Election

-Taxable distribution Election

-Tax transparency Election

-Distribution Tax Regime Election

-Safe Harbour Elections

Elections in the Administrative Guidance

As the law transposes the OECD Administrative Guidance into domestic law, all of the elections included in the OECD Administrative Guidance are provided domestically, including:

-Foreign Exchange Hedge Election

-Portfolio Shareholding Election

-Excess Negative Tax Carry-Forward Election

-Equity Investment Inclusion Election/Qualified Ownership Interest Election

-Debt Release Election

New Elections

There are no new elections in the law.

DEVIATIONS FROM THE OECD MODEL RULES/EU GLOBAL MINIMUM TAX DIRECTIVE

As expected, the law closely follows the OECD Model Rules.

The main deviations relate to the design of the QDMTT and the exclusion of the UTPR.

Section 65 of the law also provides specific rules for Protected Cell Companies. It provides that a Protected Cell Company (“PCC”) is not to be regarded as an entity and each cell of the PCC and its core are to be treated as separate entities distinct from the others.

As such, the fact that an entity is a cell of a PCC is irrelevant to determining whether the entity is a member of a Group and the accounts of the PCC are not to be regarded as Consolidated Financial Statements for GloBE purposes.

Section 64 confirms that any profit from exploration or exploitation activities or rights in the territorial sea adjacent to the Isle of Man must be treated for the purposes of the Law as profits from activities or property in the Isle of Man.

Any profits arising to any person not resident in the Isle of Man from exploration or exploitation activities or rights must be treated for the as profits of a trade carried on by that person in the Isle of Man through a branch or agency.

“Exploration or exploitation activities” is defined as activities carried on in connection with the exploration or exploitation of so much of the sea-bed and subsoil and their natural resources as is situated in the Isle of Man and the territorial sea adjacent to it.

DOMESTIC MINIMUM TAX

General

Part 3 of the Law applies a domestic minimum tax (DTUT) from January 1, 2025, that is intended to be a QDMTT. Section 67 of the Law states that the Treasury can amend any provision of the order to ensure the DTUT is classed as a QDMTT.

QDMTT Design Features

Section 11 of the Law provides that the amount of top-up tax under the QDMTT is based on the calculation of excess profits for GloBE purposes. However, there are a number of adjustments which apply either as they are not relevant or the Law expressly provides rules that apply these provisions.

Section 13 of the Law states that the following provisions of the GloBE Rules do not apply for QDMTT purposes:

-Chapter 2 (Charging Provisions);

-Articles 5.2.4 and 5.2.5 (allocation of Top-up Tax), subject to specific rules in the draft law for the allocation of the QDMTT between entities;

-Article 5.4.2 (allocation of Additional Current Top-up Tax in accordance with Article 5.4.1);

-Article 5.4.3 (allocation of Additional Current Top-up Tax in accordance with Article 4.1.5);

-Article 5.4.4 (determination as Low-Taxed Constituent Entity);

-Article 6.2.1(h) (application of IIR in respect of acquisition of a target Entity);

-Article 6.4.1(b) and (c) (application of IIR and UTPR in connection with Joint Ventures and JV Subsidiaries);

-Article 6.5.1(e) and (f) (application of IIR and UTPR in connection with Multi-Parented MNE Groups);

-Article 7.3 (Eligible Distribution Tax Systems);

-Article 8.1 (GloBE Information Return filing obligation);

-Article 8.3 (Administrative Guidance); and

-Article 9.4 ((Transitional relief for filing obligations) which amends Article 8.1 of the GloBE Rules re filing obligation in Transitional Year).

Tax paid or incurred by a Constituent Entity-owner under a CFC Tax Regime that is pushed down to a domestic Constituent Entity in the GloBE Rules must be excluded, as provided in the OECD Administrative Guidance. This is included in Section 14(1) of the law.

This preserves the Isle of Man’s primary right to tax income accruing to a Manx member entity which is also a CFC. If there were no statutory derogation from the general GloBE rules for the calculation of the domestic minimum tax, and the CFC tax paid by the controlling company abroad were included in the included taxes of the Manx CFC, the effective tax rate would be increased. Therefore, excluding the CFC tax from the Manx CFCs covered taxes allows the Isle of Main to tax low-taxed income at a higher rate than would be the case under an IIR.

Section 14(1)also prevents the pushdown of tax to hybrids, PEs and for taxes on distributions (aside from Manx withholding tax on distributions).

The UTPR exclusion for MNEs in their initial phase of international activity does not need to be included in a QDMTT, however, it can be included. The Second Set of OECD Administrative Guidance provides jurisdictions with three options regarding the temporary UTPR exclusion in their QDMTT legislation.

Option one allows the jurisdiction not to adopt it.

Option two allows the jurisdiction to adopt it but limits it to cases where no Parent Entity is required to apply a Qualified Income Inclusion Rule with respect to Constituent Entities of an MNE Group located in the QDMTT jurisdiction.

Option three allows the jurisdiction to adopt it without any limitations. (Note, if a jurisdiction opts for Option three, for the purposes of the QDMTT Safe Harbour the Switch-Over Rule would apply).

The Isle of Man applies Option two in Section 14(1)(c) of the law.

Whilst the July 2024 OECD Administrative Guidance does permit local accounting standards to be used for QDMTT purposes, the Isle of Man simply adopts the default GloBE rules in Section 12 of the law. As such the accounting standard of the UPE is used as default however. the accounting standard used in the preparation of the financial statements of the constituent entity can be used for QDMTT purposes if:

1. it is not reasonably practicable to determine the net profit or loss for the constituent entity on the basis of the UPE accounting standard;
2. it is an acceptable or authorised accounting standard;
3. the information contained in the financial statements is reliable; and
4. permanent differences of more than EUR 1 million are conformed with the UPEs accounting standard.

Under the OECD Administrative Guidance, a domestic minimum tax does not need to apply to Stateless Constituent Entities or permanent establishments to be a QDMTT. However, jurisdictions can impose a QDMTT on these entities when they are created under the domestic draft law of the jurisdiction (or where a permanent establishment has a place of business in the QDMTT jurisdiction). Section 19 of the law provides that the QDMTT does not apply to a Flow-through Entity that is treated as a stateless Entity in accordance with Article 10.3.2 of the GloBE Rules.

Section 20 of the law provides that the GloBE Commentary on the QDMTT Safe Harbour does not apply for QDMTT purposes.

Section 18 of the law applies specific rules for the allocation of the QDMTT liability between Entities. It provides that the allocation is generally based on Articles 5.2.4 and 5.2.5 of the GloBE Rules, however in certain cases a Domestic Filing Entity may elect that the allocation of DTUT liability for the Fiscal Year be made in accordance with a special procedure.  

Registration

Section 28 of the law requires every Domestic Constituent Entity of a Qualifying MNE Group, Domestic Joint Venture and Domestic Joint Venture Subsidiary to register with the Tax Authority.

A Qualifying MNE Group is required to ensure that one Domestic Constituent Entity is appointed as the Domestic Filing Entity (which must be notified to the Tax Authority). The Domestic Filing Entity is responsible for registering all other Domestic Constituent Entities, Domestic Joint Ventures and Domestic Joint Venture Subsidiaries of the Group.

The deadline for registration is the later of

• 12 months from the start of the first Fiscal Year commencing on or after 1 January 2025 of the MNE Group of which any of the following is a member:

                 (i) a Domestic Constituent Entity;

                 (ii) a Domestic Joint Venture;

                 (iii) a Domestic Joint Venture Subsidiary;

• 6 months from the date that such an Entity becomes a member of the MNE Group.

Filing

The relevant aspects of the submission of a GloBE Information Return (GIR) are included, as provided in the OECD Model Rules.

The approach is that every Domestic Filing Entity located in the Isle of Man will have an obligation to file a GIR in the Isle of Man on behalf of the Domestic Constituent Entities, Domestic Joint Ventures and Domestic Joint Venture Subsidiaries. However, this obligation can be discharged if the GIR is filed in another jurisdiction with which the Isle of Man has a Qualifying Competent Authority Agreement in force for that period.

Where the GIR is being filed by another entity, the Domestic Filing Entity, must file a notification with the Tax Authority.

The notification must contain:

-Details of the entity that is filing the GIR, and

-The jurisdiction in which such an entity is located.

The GIR must be filed no later than 15 months after the end of the fiscal year (with an 18-month deadline for the Transition Year).

Section 32 provides that in years when the IIR/MTUT does not apply to the MNE Group the Domestic Filing Entity of an MNE Group that is for a Fiscal Year within scope of the GloBE Rules in accordance with Article 1.1 of those Rules must submit an Information Return to the Tax Authority.

Sections 33 and 34 of the law requires the submission of IIR/MTUT and QDMTT/DTUT tax returns by the Domestic Filing Entity of an MNE Group on behalf of all Domestic Constituent Entities, Domestic Joint Ventures and Domestic Joint Venture Subsidiaries.

Where an MNE group does not meet the 750 million euro revenue threshold in Article 1.1 of the OECD Model Rules, Section 35 of the law provides that the Domestic Filing Entity must submit a below-threshold notification to the Tax authority in respect of that Fiscal Year.

The filing deadline for the GIR, tax returns and other notifications is:

(a) 15 months after the end of the Fiscal Year; or

(b) 18 months after the end of the Fiscal Year to which it relates, but

only if :

(i) that Fiscal Year is the first one in which the MNE Group or Domestic Joint Venture Group is liable to the DTUT or MTUT; and

(ii) the MNE Group or Domestic Joint Venture Group has not been required to file a GloBE Information Return in another jurisdiction in a previous Fiscal Year.

Cessation Form

The Isle of Man has issued the domestic top-up tax  (DTUT) Cessation Form (Form P4A – DTUT Cessation Form). 

Under Section 44(1) of the Global Minimum Tax (Pillar Two) Order 2024, prior to an Entity of a Pillar 2 registered group (or a group that is required to register):

(a) entering liquidation, dissolution or any other form of winding-up; or
(b) ceasing to be located in the Isle of Man,

the Domestic Filing Entity must notify the Assessor of the estimated DTUT
liabilities for all relevant periods that will be allocated to the Entity in the
relevant DTUT returns and the Entity must make payment on account of the estimated amounts. The cessation form must be submitted even if the amount of DTUT allocation to the entity is nil. 

Section 18 of the law applies specific rules for the allocation of the DTUT liability between entities. It provides that the allocation is generally based on Articles 5.2.4 and 5.2.5 of the GloBE Rules, however in certain cases a Domestic Filing Entity may elect that the allocation of DTUT liability for the Fiscal Year be made in accordance with a special procedure. It is this amount that is required to be notified in the Cessation Form.

The notification must be made prior to the cessation event. Under Section 44(2), on receipt of the notification of the estimated DTUT liabilities the Assessor must issue charge notices for the notified amount. Section 44(7) then requires that payment is due no later than 30 days from the date of the charge notice.

Relevant periods are defined as:

(a) all Fiscal Years for which a DTUT return has not yet been submitted by the Domestic Filing Entity; and

(b) the period commencing on the day after the most recent completed Fiscal Year and ending with the date of cessation. 

The appointment of the domestic filing entity must also be included on the Cessation Form. 

On April 24, 2025, the Online Service was launched. This is currently limited to registration and adding group details. Filing returns is not yet supported. Guidance Note 64 provides details of the service.

Payment

Section 59 of the law provides that the DTUT and MTUT for each Entity are due for payment by the deadline for submitting returns.

Penalties

The law includes a number of penalty provisions. Penalties for failure to submit returns are initially set at:

(a) article 31(2) (GloBE Information Return) – £500;

(b) article 31(5) (GloBE Information Return notification) – £250;

(c) article 32(2) (Information Return) – £250;

(d) article 32(5) (GloBE Information Return notification) – £250;

(e) article 33(1) (DTUT return) – £250;

(f) article 34(2) (MTUT return) – £250;

(g) article 35 (Below-threshold notification) – £250.

However, these increase for successive failure and additional penalties apply for other breaches including incorrect returns.

In December, 2024 the Isle of Man issued a domestic top up tax cessation form for entities that are located in the Isle of Man that are intending to enter liquidation, dissolution or any other form of winding up, or otherwise cease to be located in the Isle of Man for DTUT purposes:

Form P4A – DTUT Cessation Form

and a:

CIT Return Insert

On April 24, 2025, the Online Service was launched. This is currently limited to registration and adding group details. Filing returns is not yet supported. Guidance note 64 provides details of the service.

Transposed – see ‘Domestic Rules’