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Cross-Border Deals After Pillar Two

Given the international implementation of Pillar Two is now gathering steam, the GloBE rules will be an additional consideration for cross-border deals. 

In this article we look at some of the most significant issues to consider including the determination of when and how deals can bring groups within the scope of Pillar Two, specific considerations for private equity funds, differences in GloBE and domestic tax treatment and potential restrictions on post-acquisition transfers. 

Falling Within the Scope of Pillar Two
A key initial issue will be to ascertain the ultimate parent entity (UPE) and whether the group is within the scope of Pillar Two (eg is the 750 million consolidated turnover requirement met). This will need to be considered for the target and the acquiror. In addition, it needs to be considered whether the acquisition would bring the target within the scope of Pillar Two after the purchase.
 
Article 1.1 of the OECD Model Rules provides that the Pillar Two GloBE Rules apply to constituent entities in an MNE Group that have annual revenue of 750 million euros or more in the Consolidated Financial Statements of the UPE in at least two of the four Fiscal Years preceding the relevant fiscal year.
 
Where two separate MNE groups merge to form a single group, Article 6.1.1(a) of the

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Private Equity Fund Structure

Picture of Lee Hadnum

Lee Hadnum

Lee is a qualified Chartered Accountant and Chartered Tax Adviser. 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. Lee's books have been recommended by The Times, The Guardian and The Telegraph.

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