Pillar Two Tracker

Pillar Two: Insurance Investment Entites

Contents

General
Insurance Investment Entities are subject to special treatment under the Pillar Two GloBE Rules. 
 
Article 10.1 of the Model Rules defines an Insurance Investment Entity as an entity that would qualify as an Investment Fund or Real Estate Investment Vehicle but for the fact that it is wholly-owned by an insurance company and established in relation to liabilities under one or more insurance or annuity contracts.
 
An Insurance Investment Entity may be wholly-owned by a single entity, or by a number of entities which are all part of the same MNE Group. However, the owner(s) must be subject to regulation in their residence jurisdiction as an insurance company.
 
An investment fund is defined in Article 10 of the OECD Model Rules as an entity that:

• is designed to pool assets from a number of investors (some of which are unrelated);

• invests in accordance with a defined investment policy;

• allows investors to reduce transaction, research, and analytical costs, or to spread risk collectively;

• is primarily designed to generate investment income or gains, or protection against a particular or general event or outcome;

• investors have a right to return from the assets of the fund or income earned on those assets, based on the contributions made by those investors;

• it or its management is subject to a regulatory regime in the jurisdiction in which it is established or managed;

• it is managed by investment fund management professionals on behalf of the investors.

Insurance Investment Entities would be subject to the GloBE rules if they were controlled by the MNE group. It would only be an excluded entity if it was the UPE of the group. 
 
Similar to other investment entities the special treatment under the GloBE rules includes: 
Jurisdictional Blending
A key issue is that the GloBe ETR of Insurance Investment Entities is not subject to the general jurisdictional blending calculation, and they are treated separately along with other investment entities. For more information on jurisdictional blending, see ETR Calculation and Top-Up Tax.
 
Article 7.4.2 of the OECD Model Rules provides that multiple investment entities and Insurance Investment Entities in a jurisdiction effectively form a separate investment entity group which is subject to a separate jurisdictional ETR calculation.
 
Therefore, the GloBE income and covered taxes of Insurance Investment Entities and other investment entities is effectively merged to calculate the jurisdictional effective tax rate.
Effective Tax Rate Calculation (ETR)

General

Generally, the ETR is calculated as Adjusted Covered Taxes/GloBE Income. This is then deducted from the 15% global minimum rate to calculate the ‘top-up tax percentage’.  
GloBE income is then reduced by any Substance-Based Income Exclusion and the initial top-up tax is calculated by applying the top-up tax percentage.  There is then a further adjustment for any additional top-up tax from a previous year or any tax imposed under a qualifying domestic minimum tax. 
 
Importantly, when calculating the ETR, the adjusted covered taxes and GloBE income are not reduced for any minority interest. For example, if a UPE held 90% of the interest in a low-taxed subsidiary, there is no reduction for the 10% interest held by the minority owner and 100% of the tax and income attributable to the entity are used to calculate the Pillar Two ETR. 
 
The reason for this is that the minority interest is taken into account when the top-up tax is allocated to another group entity for payment of the top-up tax under the income inclusion rule or under-taxed payments rule. In the example above, for instance, the UPE would be allocated 90% of the top-up tax. 
Insurance Investment Entity ETR
The GloBE ETR calculation is similar to the standard ETR calculation, but with a twist. It is calculated as:
 
Adjusted Covered Taxes/MNE’s Allocable share of the GloBE Income
 
The allocable share of the GloBE income is based on the inclusion ratio used for the purposes of the IIR:
 
GloBE income of the Insurance Investment Entity less amounts attributable to other owners/total GloBE income of the Insurance Investment Entity
 
Importantly, when it comes to allocating the top-up tax for payment (eg to the UPE to account for the tax under an IIR) the top-up tax determined for the Insurance Investment Entity needs to be taken into account. Usually, the parent entity is allocated its allocable share of the top-up tax.
 
However, as this has already been adjusted for in the Insurance Investment Entity’s top-up tax calculation, all of the top-up tax can then be allocated. You can see more on this at: The Impact of the Different ETR Calculation for Investment Funds
 
Tax Transparency Election
 
A constituent entity can make a tax transparency election in respect of its ownership interest in an Insurance Investment Entity under Article 7.5 of the OECD Model Rules. This then changes the Pillar Two tax treatment as it treats the GloBE income of the Insurance Investment Entity as accruing to the constituent entity owner in proportion to its ownership entitlement.
 
It is only available where the constituent entity owner is subject to tax on a fair value accounting method on its interest in the  Insurance Investment Entity (such as under a mark-to-market accounting policy) and the tax rate levied on the income for the owner is at least 15%.
 
The purpose behind the election is to align the GloBE rules with the domestic tax treatment for the owner of the Insurance Investment Entity. The election applies to both directly held and indirectly held Insurance Investment Entities.
 
Under domestic law, the constituent entity owner would be subject to tax on the income of the Insurance Investment Entity anyway (calculated on fair value changes).
 
This election simply pushes up the income to the constituent entity owner for the GloBE income calculation to match the timing under domestic law.
 
One of the criticisms of this is that in some countries, such as Germany, changes of the fair value of the ownership interest in the investment entities are not taxed. In others, such as France, some investors are taxed on changes of the fair value as required but others are not and are taxed on the historic value of their ownership interests.
 
Therefore, this election is either not applicable in some jurisdictions or only on a few investment entities or insurance investment entities in others.
Taxable Distribution Method Election
Article 7.6 of the Model Rules provides an election so that the fund’s distributions or deemed distributions are included in the ETR calculation of the investor.  This originally applied to just investment entities, however, Article 3.1 of the February 2023 OECD Administrative Guidance confirmed that Insurance Investment Entities are also within its scope.
 
Without a taxable distribution method election for GloBE purposes there may be years where an Insurance Investment Entity had GloBE income, but no covered taxes (if it did not make distributions) which would result in top-up tax, and other years where there may be a very high GloBE ETR.
Picture of Lee Hadnum
Lee Hadnum
Lee is a qualified Chartered Accountant and a former Senior Tax Analyst at Bloomberg Tax. Lee began his career in Ernst & Young's Entrepreneurial Services department and has 20 years of international tax planning experience.

Latest Articles

This website is not affiliated with or related to the OECD. We provide independent insights and analysis on the OECD Two-Pillar Solution

image showing 'OECDpillars.com logo'
s2Member®

© 2026 OECDPillars.com 

All Rights Reserved