Investment entities and investment funds are subject to a number of special provisions under the Article 7 of the Pillar Two GloBE rules.
These in part seek to reconcile the domestic tax treatment of these entities with the GloBE rules and ensure that any impact on the top-up tax calculation does not hinder the application of the GloBE rules.
Note that investment entities are frequently not within the scope of the GloBE rules.
This may be because they are the UPE (see more in our Scope analysis) or it may be because they are less likely to have foreign operations or hold controlling interests in foreign subsidiaries.
Where an investment entity is the UPE of an MNE group it is classed as an excluded entity under Article 1.5.1 of the OECD Model Rules. As such no GloBE ETR, top-up tax or obligation to account for tax via an Income Inclusion Rule (IIR) applies.
Note, however, that the revenue of the excluded investment entity is still taken into account for the purposes of the 750 million euros revenue threshold.
In addition, under most accounting standards an exemption is provided so that the MNE group does not include eligible investment entities in the consolidated financial statements:
• Under IFRS 10 investment entities do not consolidate their subsidiaries. Instead, they are measured at fair value through the profit or loss account.
There are a couple of exceptions to this including:
(1) if the subsidiary provided investment advisory services to the investment entity, and;
(2) if the investment entity is owned by another company (a non-investment entity) then it consolidates all subsidiaries including the investment entities and any entities it controls. Non-controlling interests though wouldn’t be consolidated even by the UPE.
• Under ASC 820 investment companies use the fair value accounting method for non-controlling interests in other investment companies.
Generally, most investment funds hold minority (ie non-controlling) interests in their investments and they would not need to consolidate. As such, they would not be included in the MNE group for GloBE purposes.
Even if an investment entity held controlling interests in other entities and therefore was required to consolidate, if those entities met the requirements to be treated as excluded entities then the group would be outside the scope of the GloBE rules.
It should also be noted that many funds are structured as flow-through entities for tax purposes (eg as an English or Delaware limited partnership). They are still subject to the general requirement to consolidate for controlling interests.
However, in many cases, there would not be an element of control or a requirement to consolidate.
For instance, one of the requirements of consolidation under IFRS 10 is that the investor has the ability to affect the amount of the investor’s returns.
If such an entity was included in the consolidated financial statements, its treatment would be as identified below for a tax transparent investment entity (ie generally its GloBE income would flow up the chain to other constituent entities in the MNE group, after a reduction for amounts due to non-group members).
The general process for calculating top-up tax for investment companies under Article 7.4 of the OECD Model Rules is:
1. The top-up tax percentage is determined by deducting the investment entity ETR from the 15% global minimum rate
2. The MNE groups allocable share of the investment entities GloBE income is reduced by the substance-based income exclusion (‘excess profits’)
3. The top-up tax percentage is applied to the excess profits
As noted above, multiple investment entities in a jurisdiction effectively form a separate investment entity group which is subject to a separate jurisdictional ETR calculation.
Insurance Investment Entities are subject to special treatment under the Pillar Two GloBE Rules. Read our analysis of the key provisions.
On March 20, 2025, the Swedish Ministry of Finance issued a draft law to amend the Global Minimum Tax Act. The draft law is open for consultation until May 26, 2025. The purpose of the draft law is to implement the provisions of the June 2024 OECD Administrative Guidance into domestic law.
On March 18, 2025, the government approved a draft bill on the amendment of Liechtenstein’s Global Minimum Tax Act (‘the bill’). The bill is intended to implement domestically the OECD provisions for the exchange of information in the GloBE Information Return (GIR) under the multilateral agreement between competent authorities on the exchange of GloBE information (GIR MCAA).
On March 6, 2025 a Decree of the Italian Ministry of Finance on Notification Requirements for Global Minimum Tax purposes was published in the Official Gazette. This provides more details on the double filing relief notification under Article 51(4) of Legislative Decree December 27, 2023, no. 209 (the Global Minimum Tax Law).
The Pillar Two Rules include specific provisions for tax transparent entities to avoid artificially low effective tax rates and significant top-up tax, particularly for tax transparent UPEs.
Centralized HR/payroll companies are frequently used by MNE groups but raise specific issues in relation to the Pillar Two GloBE Rules. In particular, the impact of using a centralized function and the nature of recharges could have an impact on the substance-based income exclusion of group entities.
Jurisdictions that apply a territorial basis do not tax foreign source income. This raises some interesting issues in the application of the Pillar 2 rules.
On February 20, 2025, Gibraltar issued the Income Tax (Allowances, Deductions, and Exemptions) (Amendment) Rules 2025 to allow in-scope MNEs to just be taxed under the Global Minimum Tax Act, and not the Income Tax Act.
In this article we look at the interaction between deferred tax on bonus depreciation and the substance-based income exclusion on investments in tangible assets.
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