Pillar Two: Trusts and Foundations

Determining if the trust was the UPE could result in all companies then potentially being within the scope of the Pillar Two rules (subject to any specific exclusions etc). Aside from the application of Pillar Two to the group, the trust could then be liable to account for top-up tax.

This in itself could create issues.

The definition of a group in the Pillar Two rules relies on accounting principles so that there is a group if there is a requirement to prepare consolidated financial statements.

Whilst a trust or foundation may not usually have to prepare consolidated financial statements under an accounting standard, the Pillar Two rules go further.

Article 10 of the OECD Model Rules states that if no consolidated financial statements are prepared a deeming provision applies so that the entity must prepare hypothetical consolidated financial statements as if it was required to prepare them in accordance with an Authorised Financial Accounting Standard that is either an Acceptable Financial Accounting Standard or another financial accounting standard.

As such, a trust or foundation would need to determine if it would be required to prepare accounting standards under an accounting standard.

This would again depend on accounting principles.

Under IFRS for instance, there is a requirement to consolidate if the trust or foundation possesses power over the parent entities, has exposure to variable returns from its involvement with them and has the ability to use its power over them to affect its returns.