
Corporate Investments and Pillar Two
The Pillar Two GloBE treatment of corporate investments will depend to a large extent on the nature of the activities, the accounting treatment and the ownership interest.
Under Article 5.5 of the OECD Model Rules, a constituent entity can make an annual election for a de minimis exclusion to apply so that there is no top-up tax for a fiscal year if:
• the average Pillar Two GloBE revenue of the jurisdiction for the current and the two preceding fiscal years is less than EUR 10 million; and
• the average net Pillar Two GloBE income or loss of the jurisdiction for the current and the two preceding fiscal years is a loss or is less than EUR 1 million.
In order for the de minimis rule to apply, all constituent entities in the jurisdiction are required to meet the requirements.
Where the de minimis exclusion applies, the MNE is not required to calculate adjusted covered taxes, the Pillar Two ETR or top-up tax for the jurisdiction.
Both the average Pillar Two GloBE income and revenue requirements are based on the same rules used to calculate the jurisdictional Pillar Two GloBE income.
Note that although the de minimis exclusion is calculated on a jurisdictional basis, minority-owned sub-groups are included for this purpose (unlike for standard jurisdictional blending purposes). Therefore, the average revenue and income of minority-owned subgroups are included. For more information on minority-owned subgroups, see Minority-Owned Entities
Under Article 5.5.2 of the OECD Model Rules, the de minimis exclusion is based on a three-year average for revenue and income, however, a year is excluded for the averaging calculation if:
• There are no constituent entities with a Pillar Two GloBE income or loss in the jurisdiction;
• There are no constituent entities in the jurisdiction; or
• The only constituent entities in the jurisdiction are dormant
If the fiscal years for the averaging calculation are different with some longer or shorter, a pro-rata calculation is made.
The first of the threshold tests for the de minimis exclusion uses Pillar Two GloBE revenue. This is not the same as Pillar Two GloBE income which is used for calculating the Pillar Two GloBE ETR.
Pillar Two GloBE revenue is defined in Article 10 of the OECD Model Rules, and is initially taken from the revenue for a constituent entity in preparing the consolidated financial accounts. As the de minimis exclusion is a jurisdictional election, the revenue of all constituent entities in the jurisdiction is added together (unless specifically excluded).
The financial accounting revenue figure is then adjusted for Pillar Two GloBE purposes based on adjustments that are used to calculate Pillar Two GloBE income. Not all of these adjustments would affect revenue as some would impact on the deductibility of expenses.
Key Pillar Two GloBE income adjustments that would impact on Pillar Two GloBE revenue for the purposes of the de minimis exclusion include:
• Income and gains excluded under the OECD’s version of a participation exemption (eg excluded dividends, capital gains)
• Excluded equity gains or losses
• Revaluation gains or losses
• Differences in exchange rate conversions between tax and accounting currencies
• Prior period changes
• The arms-length requirement for transactions between constituent entities in different jurisdictions
• Refundable tax credits where they are reflected in the current tax expense in the financial accounts
• Elections to exclude gains or losses from fair value accounting
• Elections to apply consolidated accounting treatment to constituent entities in the same jurisdiction
• Exclusions for international shipping and ancillary income
• Revenue allocated to a permanent establishment which is deducted from revenue of the main entity
• Tax transparent entities where income is allocated to members
If there is a requirement to recalculate the ETR for a previous year, this may (depending on the nature of the adjustment) impact on Pillar Two GloBE revenue or income for the previous year.
If a subsequent adjustment reduces Pillar Two GloBE revenue or income for a previous fiscal year below the relevant monetary threshold for the de minimis exclusion, this does not entitle the MNE to the de minimis exclusion.
However, if there is an increase in Pillar Two GloBE revenue or income for a previous fiscal year such that the de minimis thresholds are not met, there is a requirement to calculate the Pillar Two GloBE ETR and top-up tax for that relevant year.
The de minimis exclusion does not apply to stateless or investment constituent entities. As such their revenue and income are not included in the threshold tests for determining if the de minimis exclusion applies.
Under Article 5.5 of the OECD Model Rules, a constituent entity can make an annual election for a de minimis exclusion to apply so that there is no top-up tax for a fiscal year if:
• the average Pillar Two GloBE revenue of the jurisdiction for the current and the two preceding fiscal years is less than EUR 10 million; and
• the average net Pillar Two GloBE income or loss of the jurisdiction for the current and the two preceding fiscal years is a loss or is less than EUR 1 million.
Pillar Two GloBE revenue is defined in Article 10 of the OECD Model Rules, and is initially taken from the revenue for a constituent entity in preparing the consolidated financial accounts. As the de minimis exclusion is a jurisdictional election, the revenue of all constituent entities in the jurisdiction is added together (unless specifically excluded).
The Pillar Two GloBE treatment of corporate investments will depend to a large extent on the nature of the activities, the accounting treatment and the ownership interest.
On April 30, 2025, the Swiss Federal Council issued a proposal to amend the Minimum Tax Ordinance to provide for the OECD GIR provisions, as well as some other small amendments.
On March 31, 2025, Japan enacted Cabinet Order No. 121 of 2025 and Ministry of Finance Ordinance No. 19 of 2025 to provide further details on the application of Japan’s QDMTT from April 1, 2026.
In April 2025, the Hong Kong Government proposed a number of Committee Stage Amendments to the Inland Revenue (Amendment) (Minimum Tax for Multinational Enterprise Groups) Bill 2024. This includes amendments for the January 2025 and June 2024 OECD Administrative Guidance.
South Korea’s amendment to the Enforcement Decree No. 35348 of February 28, 2025 and the Decree of the Ministry of Economy and Finance No. 1114 of March 21, 2025 provide for further aspects of the June 2024 OECD Administrative Guidance as well as additional top-up tax forms.
Updates to our ‘OECD Administrative Guidance: Domestic Implementation Matrix’ to reflect the latest April 2025 Pillar 2 updates for the UAE and Poland.
On April 7, 2025, the Polish Ministry of Finance released details for a draft bill to amend the Minimum Tax Act. The amendments are primarily to implement the June 2024 and January 2025 OECD Administrative Guidance.
On April 16, 2025, the Ministry of Finance issued Ministerial Decision No. (88) of 2025 to provide for the application of the OECD Administrative Guidance from January 1, 2025.
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. In this article we look at the different jurisdictional approaches.
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