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 July 13, 2026, the UK government published draft Finance Bill 2026–27 legislation implementing the OECD’s January 2026 Side-by-Side package.
On July 1, 2026, Australia issued the Taxation (Multinational—Global and Domestic Minimum Tax) Amendment (2026 Measures No. 2) Rules 2026. This incorporates elements of the OECD Agreed Administrative Guidance issued in December 2023, June 2024 and January 2026.
On June 26, 2026, Cyprus issued Decree 272/2026 to confirm entry-into-force dates for the main January 2026 OECD safe harbour package
On June 22, 2026, the UAE issued Ministerial Decision No. 96 of 2026 to implement the OECD Side-by-Side Tax Package.
On June 26, 2026, Turkey announced an extension to the filing of its GloBE tax return and payment from June 30, 2026 to July 31, 2026.
On June 16, 2026, the Dutch Ministry of Finance opened an internet consultation on the Draft Safe-Harbour Bill. The consultation closes on 14 July 2026 and provides draft legislation to implement the OECD Side-by-Side package into the Dutch domestic regime.
On June 15, 2026, the Cyprus Tax Department issued two announcements on the domestic implementation of the Pillar Two framework. The first concerned the European Commission’s position on Cyprus’ Income Inclusion Rule (IIR). The second addressed filing deadlines and compliance obligations for Cypriot constituent entities and joint ventures under Law 151(I)/2024.
On June 10, 2026, the EU issued the ‘Manual for MNE Groups on Global Minimum Tax (Pillar Two) Compliance Obligations‘. This provides country level analysis of Pillar Two filings in Austria, Belgium, Croatia, Cyprus, Czech Republic, Finland, France, Germany, Greece, Ireland, Poland, Romania, Slovenia and Sweden.
A practical overview of the Dutch GloBE Information Return (GIR) filing process, including BIA terminology, deadlines, XML format, Digipoort submission, security, validation, notification obligations and governance controls.
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