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Pillar Two Tracker

Pillar Two: Investment Company ETR Calculation

Contents

  1. ETR Calculation, Generally
  2. Investment Entity ETR Calculation
  3. Example 1: Investment Company ETR
  4. Example 2: Investment Company ETR
ETR Calculation, Generally
Generally, the ETR is calculated as Adjusted Covered Taxes/GloBE Income. This is then deducted from the 15% global minimum rate to calculate the ‘top-up tax percentage’.
 
GloBE income is then reduced by any Substance-Based Income Exclusion and the initial top-up tax is calculated by applying the top-up tax percentage.  There is then a further adjustment for any additional top-up tax from a previous year or any tax imposed under a qualifying domestic minimum tax. 

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image showing group structure for investment entities ETR example

group structure for example 2 showing the ETR for investment entities

FAQs

No, they are subject to a number of special rules.  Importantly, when calculating top-up tax, a reduction is made for minority interests. This does not apply to other companies as minority interests are taken into account when allocating top-up tax (eg under the income inclusion rule)

Under Article 7.4 of the OECD Model Rules, minority interests are taken into account when calculating the ETR and the top-up tax. 
 
The adjusted covered taxes for an investment entity is comprised of:
 
 – the MNE groups allocable share of covered taxes of the investment entity  
 – the MNE groups allocable share of covered taxes of the investment entity owners
 
Covered taxes of the investment entity owners can be allocated to the investment entity in certain circumstances, such as where the investment entity owners are subject to tax under a CFC regime or where withholding tax on dividends is incurred (which is allocated to the paying company, unlike other withholding tax that is taken into account in the recipients covered tax calculation).
 
The MNE groups allocable share is calculated under Article 7.4.4 of the OECD Model Rules as:
 
GloBE Income of the Investment Entity – Amounts Attributable to Other Owners
               GloBE Income of the Investment Entity
 
Globe Income and the Substance-Based Income Exclusion are similarly based on the amount of the MNE Groups allocable share.
 
Picture of Lee Hadnum
Lee Hadnum
Lee is a qualified Chartered Accountant and Chartered Tax Adviser. A former Senior Tax Analyst at Bloomberg Tax, Lee began his career in Ernst & Young's Entrepreneurial Services department and has 20 years of international tax planning experience. Lee's books have been recommended by The Times, The Guardian and The Telegraph.

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