Pillar 2 Dashboard: Gibraltar

On February 20, 2025, Gibraltar issued the Income Tax (Allowances, Deductions, and Exemptions) (Amendment) Rules 2025 which allows in-scope MNEs to elect to just be taxed under the Global Minimum Tax Act, and not the Income Tax Act.

On December 10, 2024, Gibraltar published draft legislation to implement a DMTT for fiscal years starting from December 31, 2023 as well as an IIR for fiscal years starting from December 31, 2024. The Global Minimum Tax Act 2024 was enacted on December 23, 2024.

OVERVIEW

On December 10, 2024, Gibraltar issued the Global Minimum Tax Bill, 2024 to transpose the OECD Model Rules (and accompanying guidance) into domestic law. This was subsequently enacted into domestic law on December 23, 2024 (‘the Law’).

The purpose of the Law is to give legal effect in Gibraltar to the GloBE Rules to implement:

-an income inclusion rule (IIR) that is intended to be a Qualified IIR;

-a domestic minimum top-up tax (DMTT) that is intended to be a Qualified Domestic Minimum Top-up Tax (QDMTT).

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

The IIR is to apply to Fiscal Years beginning on or after December 31, 2024, whilst the DMTT applies to Fiscal Years beginning on or after December 31, 2023.

On February 20, 2025, Gibraltar issued the Income Tax (Allowances, Deductions, and Exemptions) (Amendment) Rules 2025.

This provides that a Gibraltar Parent Entity that is within scope of the provisions of the Income Tax Act 2010 and the Global Minimum Tax Act 2024 can elect that the provisions of the Income Tax Act 2010 that levy a charge to tax will not apply to the Gibraltar Parent Entity or the Constituent Entities of that Group and only the Global Minimum Tax Act 2024 will apply.

Under Section 3 of the Rules, a “Gibraltar Parent Entity” is defined as:

-a Constituent Entity of a Group that is ordinarily resident in Gibraltar under the Income Tax Act 2010; or

-an Ultimate Parent Entity registered or otherwise established in Gibraltar.

The terms “Constituent Entity”, “Group” and “Ultimate Parent Entity” have the meanings given in the Global Minimum Tax Act 2024 or the OECD Model Rules.

Given that Gibraltar’s corporate income tax rate under Income Tax Act 2010 is 15%, this is designed as a simplification measure to allow MNEs to be taxed under a single regime.

The election must be made in writing and approved by the tax authority. Once approval is given the election, it applies for accounting periods commencing after the date the election is made. If the MNE group subsequently falls out of scope of the Pillar 2 rules, this must be notified to the Tax Authority.

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 5 of the Law provides that references in the OECD Model Rules to an implementing jurisdiction are deemed to be references to Gibraltar.

Section 4 of the Law states that the OECD Model Rules have effect in Gibraltar and for the purposes of interpreting the terms defined in the Model Rules, Gibraltar will have regard to the OECD Commentary including the Safe Harbours. The Commentary is defined as the OECD Consolidated Commentary.

Section 6(1) of the Law states that amendments made to the OECD Commentary, including through Administrative Guidance, will apply to the interpretation of GloBE rules in Gibraltar for Fiscal Years beginning after the date the amendment is approved by the OECD/G20 Inclusive Framework on BEPS (or such other date as specified by the Minister by Notice, except where specifically made inapplicable by the Minister by Notice).

The GloBE Administrative Guidance is defined in Section 3(1) to include:

-The February 2023 OECD Administrative Guidance;

-The July 2023 OECD Administrative Guidance;

-The December 2023 OECD Administrative Guidance;

-The June 2024 OECD Administrative Guidance; and

-Any other document promulgated by the OECD

Section 12 of the Law states that an Ultimate Parent Entity, Intermediate Parent Entity or Partially Owned Parent Entity is liable to pay a Top-up Tax under the Income Inclusion Rule determined in line with the OECD Model Rules The only aspects of the OECD Model Rules that are not applicable for the IIR calculation are the provisions relating to the UTPR (including the exclusion for MNE Groups in the initial phase of their international activity).

Under Section 8 of the Law, if the Top-up Tax computed in Gibraltar is in a foreign currency, it must be converted into an equivalent sum in sterling using the average exchange rate for the Fiscal Year to which the Top-up Tax relates.

Administrative Guidance

The OECD Commentary, including all amendments made by the OECD Administrative Guidance is taken into account under Sections 4 and 6 of the Law when applying the Pillar Two GloBE Rules.

Safe Harbour and Penalty Relief Guidance

Section 4(2) of the Law states that in applying the IIR and DMTT the provisions of the GloBE Rules must be applied consistently with the most recent OECD Commentary, including the Safe Harbours.

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 document published by the OECD.

Therefore all the OECD Safe Harbours should be applicable for the IIR where relevant. For the DMTT, Section 20 of the Law provides that the QDMTT Safe Harbour does not apply for DMTT purposes (as it is not relevant).

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 

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

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 DMTT and the exclusion of the UTPR.

Section 41 of the Law provides for a targeted anti-avoidance provision under which the Gibraltar tax authority may counteract or disregard any tax advantage for the purposes of the Bill that a person has obtained from or under a tax avoidance arrangement.

DOMESTIC MINIMUM TAX

General

Part 4 of the Law applies a domestic minimum tax (DMTT) from December 31, 2023, that is intended to be a QDMTT.

QDMTT Design Features

Section 18 of the Law provides that the amount of top-up tax under the DMTT 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 Bill expressly provides rules that apply these provisions.

It should be noted that (unlike the IIR) the DMTT applies to wholly domestic groups (defined as a group where the Ultimate Parent Entity and all Constituent Entities are located within Gibraltar and the 750 million euro revenue threshold is met).

Investment entities and insurance investment entities are specifically excluded from the DMTT in Section 14 of the Law.

Section 19 of the Law states that the following provisions of the GloBE Rules do not apply for QDMTT purposes:

-Chapter 2 (Charging Provisions);

-Article 5.2.3 (Jurisdictional Top-up Tax formula);

-Articles 5.2.4 and 5.2.5 (allocation of Top-up Tax);

-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 a 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 9.3 (Exclusion from the UTPR of MNE Groups in the initial phase of their
international activity)

Taxes Pushed Down

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 22 of the Law.

This preserves Gibraltar’s primary right to tax income accruing to a Gibraltar 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 Gibraltar CFC, the effective tax rate would be increased. Therefore, excluding the CFC tax from the Gibraltar CFCs covered taxes allows Gibraltar to tax low-taxed income at a higher rate than would be the case under an IIR.

Section 22 also prevents the pushdown of tax to hybrids, PEs and for taxes on distributions (aside from Gibraltar withholding tax on distributions).

International Activity Exemption

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).

Gibraltar applies Option one in Section 19(l) of the Law.

Accounting Standard

Whilst the OECD Administrative Guidance does permit local accounting standards to be used for QDMTT purposes, Gibraltar simply adopts the default GloBE rules. 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.

Other

The Law does not apply specific provisions to Stateless Entities or apply the provisions for a transitional year refresh as provided in the OECD Administrative Guidance.

Section 20 of the Law provides that the QDMTT Safe Harbour does not apply for DMTT purposes.

Registration

Not provided.

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 UPE or designated filing entity located in Gibraltar will have an obligation to file a GIR in Gibraltar on behalf of the MNE group. However, this obligation can be discharged if the GIR is filed in another jurisdiction with which Gibraltar has a Qualifying Competent Authority Agreement in force for that period.

Where the GIR is being filed by another entity, the UPE or designated local entity, must file a notification with the Tax Authority no later than three months prior to the GIR filing due date.

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 27(1) of the Law requires the filing of a GIR for DMTT purposes. A Domestic Constituent Entity, Domestic Joint Venture and/or Domestic JV Subsidiary, must file a DMTT GIR by the standard GIR filing deadline. Under Section 27(2) of the Law a Designated Local Entity must be appointed to file the DMTT GIR on behalf of all Domestic Constituent Entities, Domestic Joint Ventures and Domestic JV Subsidiaries.

A Designated Local Entity, Domestic Constituent Entity, a Domestic Joint Venture and a Domestic JV Subsidiary are not required to file a DMTT GIR if one has been filed in a jurisdiction that has a Qualifying Competent Authority Agreement in effect with Gibraltar for the Reporting Fiscal Year. If this applies the Designated Local Entity, Domestic Constituent Entity, the Domestic Joint Venture or Domestic JV Subsidiary must file a notification with the Tax Authority no later than three months prior to the DMTT GIR filing due date.

Payment

Section 29 of the Law provides that the payment deadline for top-up tax under the IIR and DMTT is the GIR filing deadline.

For IIR purposes, the parent entity is required to pay the top-up tax on behalf of the MNE group. For DMTT purposes, the Designated Local Entity pays the top-up tax on behalf of all Domestic Constituent Entities, Domestic Joint Ventures, and Domestic JV Subsidiaries.

Penalties

Part 10 of the Law includes penalty provisions. Section 43 applies a penalty of £1,000 for failure to file a GIR.

Section 44 applies a late payment penalty of 2% of the amount of the unpaid top-up Tax (increasing to 5% where any top-up tax is not paid within 30 days from the date it becomes payable).

None issued.