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Section 5 of the Fourth Set of OECD Administrative Guidance (published on June 17, 2024) provides clarifications on the allocation of both profits and taxes of Flow-through Entities (including both hybrid entities and reverse hybrid entities). Most of these changes are to ensure the consistent matching of income and taxes in the same entity/jurisdiction.
 
Unlike certain other aspects of the OECD Administrative Guidance, many of these changes will need to be enacted in domestic legislation. The extension of the hybrid tax pushdown to include reverse hybrid entities, for instance, will require specific amendment of domestic Pillar Two laws.
 
This will also impact on jurisdictions that have implemented QDMTTs, as in order for a domestic minimum tax to be a QDMTT the hybrid tax pushdown must be excluded. This will now also need to be amended to include reverse hybrids.
 
The latest guidance covers:
 
-Determining GloBE status when a Flow-through Entity is held directly by another Flow-through Entity;
 
-Non-group owners: Partially owned Flow-through Entities;
 
-Non-group owners: Indirect minority ownership;
 
-Taxes allocated to a flow through entity;
 
-Hybrid entities – Taxes pushed down include indirect owners;
 
-Hybrid entities – Entities located in jurisdictions without a Corporate Income Tax system; and
 
-Extension of taxes pushed down to include Reverse Hybrids. 

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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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