Intragroup financing arrangements are subject to special rules under Article 3.2.7 of the OECD Model Rules.
This is a common area of tax planning for MNE’s and without specific provisions, they could adjust the effective tax rate (ETR) of jurisdictions by structuring financing operations.
For instance, they could reduce Pillar Two GloBE income in jurisdictions that were just below the minimum rate (therefore increasing the ETR and potentially resulting in the jurisdictional ETR being over 15%) whilst increasing Pillar Two GloBE income in jurisdictions that had significant ETR capacity (ie where the jurisdictional ETR is significantly above 15% anyway).
A typical arrangement that would be targeted by this is a hybrid financing arrangement such as:
MNE Co 1 is resident in a low-tax jurisdiction. It borrows money from MNE Co 2 by way of a debt instrument 2. MNE Co 2 is a member of the same MNE group and is resident in a high tax jurisdiction.
The debt instrument is treated as equity for tax purposes and debt for financial accounting purposes in both jurisdictions.
As such, interest payments by MNE Co 1 would reduce Pillar Two GloBE income (and therefore increase the Pillar Two GloBE ETR) without any reduction in the domestic tax liability (as dividends are generally not tax-deductible).
By contrast, the interest receipt would increase Pillar Two GloBE income in MNE Co 2 (reducing its Pillar Two GloBE ETR) without a corresponding increase in its domestic taxable income.
Therefore, as an anti-avoidance measure, the Pillar Two GloBE income or loss of a low-taxed entity does not include any expenses of an intra-group financing arrangement that can be expected to increase the expenses of a low-taxed entity without a corresponding increase in the taxable income of a high taxed entity.
A low-taxed entity is generally an entity in a jurisdiction where the Pillar Two GloBE ETR is less than 15%.
There is no increase in the taxable income of a high-taxed entity if the income qualifies for an exclusion or deduction ie just because the high-taxed entity is allocated the income for local tax purposes does not mean this requirement is met, if it qualified for deduction or credits that offset it.
This could be the case if, for example, it has brought forward interest expenses sufficient to offset interest received from the low-taxed entity.
Whether there is an intragroup financing arrangement in place is an objective test and is based on whether there is an arrangement between two or more members of an MNE group which results in a high taxed entity directly or indirectly providing credit or making an investment in a low taxed entity.
In addition, again using an objective test, the arrangement must be reasonably expected to reduce the Pillar Two GloBE income of a low taxed entity without increasing the taxable income of a high taxed entity over the duration of the agreement.
Profits from international shipping (eg profits derived from the transport of cargo or passengers by ships) as well as certain ancillary income are generally exempt for Pillar Two GloBE income purposes under Article 3.3 of the OECD Model Rules.
As this would have been included in the profits in the financial accounts, an adjustment to the Pillar Two GloBE income is required.
On 18 September 2026, Brazil issued IN RFB No. 2,342/2026 to introduce a new framework for the treatment of substance-based tax incentives under its Pillar Two rules.
On 15 September 2026, the Dutch government presented a bill that would introduce four new Pillar Two safe harbours, extend the Transitional Country-by-Country Reporting Safe Harbour and amend the treatment of certain 52- and 53-week accounting periods.
On September 11, 2026, the OECD released a package of guidance and implementation materials that provides for the exclusion of Explicitly Conditional Taxes from Covered Taxes, clarifies the treatment of mismatched fiscal periods under the Qualified Domestic Minimum Top-up Tax Safe Harbour, updates the GloBE Information Return and establishes the detailed framework for full legislative reviews of domestic minimum tax rules.
Uruguay’s presidential decree dated 31 August 2026 replaces the conditional QDMTT payment waiver in Decree No. 325/025 with a compensation mechanism. Article 1 requires in-scope constituent entities allocated QDMTT in Uruguay to comply with its QDMTT obligations and pay the tax; article 7 repeals the earlier decree.
Qatar has published six decisions dealing with currency conversion, simplified reporting, the Transitional CbCR Safe Harbour, non-material constituent entities, designated local entities and registration.
The Slovak Government has approved draft legislation that would make significant changes to Slovakia’s qualified domestic minimum top-up tax regime. The proposals would implement the OECD’s new Substance-Based Tax Incentives Safe Harbour, extend the Transitional CbCR Safe Harbour and introduce rules preserving Pillar Two filing and payment obligations where a Slovak taxpayer ceases to exist without a legal successor.
Cyprus has opened a public consultation on amendments to its Pillar Two legislation intended to address observations from the European Commission and align the domestic rules more closely with OECD guidance. The consultation opened on 30 July 2026 and is scheduled to close on 5 September 2026.
On August 7, 2026, Germany published a regulation that gives domestic legal effect to a jurisdiction-by-jurisdiction list of qualifying Pillar Two jurisdictions.
On August 8, 2026, Mauritius issued its QDMTT regulations to implement its QDMTT.
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