1. Non-Consolidation
1.1 Overview of Accounting Treatment
1.2 Pillar Two – Non-Consolidated JVs
1.3 How the Pillar Two Rules Apply to JVs
2. Consolidated JVs
2.1 General Rule
2.2 Top-Up Tax
For accounting purposes, the key criterion is whether there is significant influence.
For instance, under IAS 28, it is presumed that if an investor controls 20%-50% of the voting rights of the JV that there is significant influence, but there can be cases where significant influence can apply even below this threshold (eg significant transactions between the entities or participation in board meetings etc).
Under accounting rules such entities are usually classed as ‘associates’.
Where there is significant influence, the interest in the JV is accounted for under the equity method and the results are not consolidated.
Essentially the initial investment is recorded at cost and then adjusted for the actual performance of the JV.
Note that there is still an impact on the consolidated accounts.
In the consolidated statement of profit or loss, dividend income received from the JV is replaced by bringing in one line that shows the parent’s share of the JV results immediately before the consolidated profit before tax.
If by contrast, the investor controlled the investee then the results of the investee would be consolidated on a line-by-line basis in the consolidated financial statements.
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The treatment of joint ventures (JVs) under the Pillar Two rules depends on whether the interest in the JV is consolidated on a line-by-line basis in the consolidated accounts. If it is, the general rules apply. If not, special rules apply to treat the JV separately from other jurisdictional entities.
Joint Ventures (JVs) that aren’t consolidated are treated as follows:
1. The JV and any of its subsidiaries are treated as a separate MNE group for Pillar Two purposes, and the JV is treated as the UPE, under Article 6.4.1(a) of the OECD Model Rules.
This means that for the purposes of jurisdictional blending the JV group income and covered tax is not included with other entities in the jurisdiction.
2. The JV itself does not apply the income inclusion rule or the under-taxed payments rule, under Article 6.4.1(b) of the OECD Model Rules.
The standard rules apply and the UPE or other parent entity would apply an IIR.
3. The UPE or parent entity is subject to top-up tax on its allocable share of the JV group under Article 6.4.1(c) of the OECD Model Rules.
This takes into account both direct and indirect holdings.
On November 12, 2024, the Vietnamese Ministry of Finance issued a Draft Decree for the Implementation of the GloBE Rules. This is subject to a consultation until December 6, 2024 and it includes provisions for the detailed operation of the GloBE rules in Vietnam.
The September 17, 2024 draft law to amend the Minimum Tax Act was amended on October 3, 2024. Read our updated GloBE Guide.
On November 7, 2024, the UK issued Finance Bill 2024-2025 which includes a number of amendments to provide for the December 2023 and June 2024 OECD Administrative Guidance. Read our updated GloBE Guide.
On October 30, 2024 the Global Minimum Tax Bill and the Global Minimum Tax Administration Bill were sent to the National Assembly. Read our updated Country Guide.
On November 7, 2024, the Finance Bill 2024-2025 was introduced to Parliament. This includes provisions to enact the UTPR (and associated rules such as the Transitional UTPR Safe Harbour and Initial Phase of International Activity Exemption), and other Pillar 2 amendments.
On October 31, 2024 additional amendments were made to the 2024 draft amendment law to incorporate aspects of the OECD June 2024 Administrative Guidance.
On October 29, 2024, Hungary issued its Autumn Tax Package proposal. This included minor changes to the Pillar Two law. Most notably it expanded on the registration requirements.
We keep track of the domestic implementation of the Subject-to-Tax Rule (STTR) internationally including links to relevant effected double tax treaties.
MNE groups should pay careful attention to any group financing companies in light of the Pillar Two Rules. In this analysis we look at the impact of Pillar Two for both general GloBE and QDMTT purposes.
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