As a permanent establishment (PE) is treated as a separate entity for Pillar Two GloBE purposes the Pillar Two GloBE income of a PE needs to be determined.
However, the Pillar Two GloBE income rules rely on the financial accounts of the entity which may include the profits attributable to a PE (ie for financial accounting purposes, a PE is not always recognized and there may not be separate financial accounts).
Therefore, Article 3.4 of the OECD Model Rules includes provisions to allocate the income between an entity and its PEs.
Where a PE exists under a tax treaty, domestic law or would have existed in a jurisdiction with no corporate income tax if there was a tax treaty in place if there are separate financial accounts for the PE, these apply, and the net income or loss is used.
If there are no financial accounts in place, accounts would need to be prepared based on the accounting standard the UPE used to prepare the consolidated financial accounts. The amount of income and expenses attributed to the PE are based on the provisions of the relevant tax treaty or domestic law.
Note that whilst the tax treatment of the income in the PE jurisdiction has no impact on the allocation to the PE jurisdiction, timing differences may adjust the treatment.
The Pillar Two GloBE rules deem there to be a PE where there is no actual PE, and the income deriving from the activities of the PE is exempt in the residence jurisdiction (ie the residence of the main entity).
In this case, the amount attributable to the PE is the amount of tax-exempt income as well as any expenses not taken into account by the main entity because they are attributable to foreign activities.
Given income or losses are attributable to PEs if they are included in the financial accounts of the main entity they would need to be deducted when calculating Pillar Two GloBE income.
If there is a loss in a PE, this will be treated as an expense of the main entity under Article 3.4.5 of the OECD Model Rules to the extent that the loss of the PE is treated as an expense for domestic tax purposes.
Pillar Two GloBE income that is subsequently earned by the PE is treated as income of the main entity up to the amount treated as an expense by the main entity.
In general, for tax purposes the income of transparent entities (eg tax transparent partnerships, LLPs and LLCs) is taxed on the underlying owners. However, for accounting purposes, these entities would generally have their own financial accounts.
Given the Pillar Two GloBE rules rely on financial accounting information, specific additional rules are provided in Article 3.5 of the OECD Model Rules to correctly allocate the income of transparent entities in a way that reflects most domestic tax treatment.
Firstly, the financial accounting net income or loss of a transparent entity or reverse hybrid is reduced by any amounts due to owners that aren’t members of the MNE group. This is necessary as the Pillar Two GloBE ETR of the group members won’t include income or taxes paid by non-group members.
Secondly, if the transparent entity or reverse hybrid carries our business through a PE, this needs to be deducted from the accounting income of the transparent entity or reverse hybrid, given that PEs are treated as separate constituent entities for Pillar Two GloBE purposes.
Finally, any remaining amount of the financial accounting income or loss is allocated:
– To the owners if the entity is a transparent entity (based on their ownership interest). This can flow up the chain if there are a number of transparent owners.
– To the entity itself if the entity is a reverse hybrid
– To the UPE if the entity is a transparent entity and the UPE of the MNE group.
Australia’s November exposure draft proposes annual Side-by-Side and UPE safe harbours from 2026, while preserving domestic minimum tax. Consultation closes on 26 November.
Brazil’s Federal Revenue Service has published draft rules to add a Simplified ETR Safe Harbour to the Additional CSLL from fiscal years beginning on or after 1 January 2027. The consultation closes on 16 November 2026.
Liechtenstein’s Parliament passed amendments replacing the time-limited Article 28 safe-harbour power and adding Government competence for the GIR MCAA list. The measure awaits the referendum and Gazette stages.
Poland’s Parliament has passed a bill that would raise ordinary corporate income tax to 22% for taxpayers that were in scope of Poland’s Pillar Two law in the preceding year, as an alternative to a EUR 50 million local-revenue trigger. The bill awaits presidential action and does not amend Poland’s IIR, UTPR or QDMTT rules.
Ireland Revenue eBrief No. 164/26 adds operational rules for correcting and deleting accepted Top-up Tax Information Returns and for coding the jurisdictions entitled to receive centrally filed GIR data. The 15- and 18-month filing deadlines are unchanged.
AADE Decisions A.1236 and A.1237, published on 2 November 2026, prescribe separate domestic top-up tax and IIR/UTPR self-assessment returns. The decisions address designated filers, nil returns, electronic submission and payment under Greece’s existing Pillar Two regime.
Royal Decree 101/2026, published in Gazette 1672 on 1 November 2026, rewrites Oman’s Pillar Two registration, filing and payment provisions. Specified amendments apply from the tax year beginning 1 January 2025; the additional enforcement provisions take effect on 2 November 2026.
Curaçao’s final minimum-tax ordinance introduces an IIR from fiscal years beginning in 2025, reserves domestic-tax and UTPR chapters, and sets separate GIR and tax-return deadlines.
Italy’s Revenue Agency rejects using lower 2023 comparatives restated under OIC 34 for the 2024 Pillar Two scope test. We examine Response No. 188/2026 and the implications for groups near the €750 million threshold.
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