Article 7.5.2 of the OECD Model Rules provides that this is a five-year election and it treats the GloBE income of the investment entity as accruing to the constituent entity owner in proportion to its ownership entitlement.
It is only available where the constituent entity owner is subject to tax on a fair value accounting method on its interest in the investment entity (such as under a mark-to-market accounting policy) and the tax rate levied on the income for the owner is at least 15%.
The purpose behind the election is to align the GloBE rules with the domestic tax treatment for the owner of the investment entity. The election applies to both directly held and indirectly held investment entities.
Under domestic law, the constituent entity owner would be subject to tax on the income of the investment entity anyway (calculated on fair value changes). This election simply pushes up the income to the constituent entity owner for the GloBE income calculation to match the timing under domestic law.
One of the criticisms of this election is that in some countries, such as Germany, changes of the fair value of the ownership interest in the investment entities are not taxed. In others, such as France, some investors are taxed on changes of the fair value as required but others are not and are taxed on the historic
value of their ownership interests.
Therefore, this election is either not applicable in some jurisdictions or only on a few investment entities or insurance investment entities in others.
Note that once an election is made a constituent entity owner of an investment entity shouldn’t include any fair value adjustment even if when looked at separately it may use a fair value basis for accounting purposes. If there are any fair value adjustments included in the financial accounting income or loss they should be excluded from GloBE income.
To include such adjustments would result in the income being included in GloBE income twice given the tax transparency election already allocates the share of the investment entity income to the constituent entity.
In this case, if we assume P Co 1 and P Co 2 were subject to the mark-to-mark basis on their investment in the investment fund, they could file a tax transparency election.
The income of the fund, which is likely to be calculated on a fair value basis under accounting standards, would be included in P Co 1 and P Co 2’s GloBE income.
If the income was for instance 1,000,000 euros, P Co 1 would include 750,000 euros and P Co 2 would include 250,000 of income.
The substance-based income exclusion also applies to the constituent entity owners on a tax transparent basis. In other words, the constituent entity owner can take into account its share of the payroll costs and tangible assets in the jurisdiction when calculating excess profits.
The Tax Transparency Election treats the GloBE income of the investment entity as accruing to the constituent entity owner in proportion to its ownership entitlement.
The purpose behind the election is to align the GloBE rules with the domestic tax treatment for the owner of the investment entity.
The Finance Act 2025, enacted on August 8, 2025, introduces a new Sub-Part AF to the Income Tax Act to include a domestic minimum top-up tax (intended to be a QDMTT) from July 1, 2025.
On January 15, 2025, the OECD issued Administrative Guidance that includes a list of jurisdictions that have transitional qualified status for the purposes of the income inclusion rule and domestic minimum tax (including the QDMTT Safe Harbour). This was subsequently updated on March 31, 2025 and August 18, 2025.
On August 6, 2025, Germany issued the draft bill to amend the Minimum Tax Act. This follows the two previous discussion drafts and now includes the January 2025 OECD Administrative Guidance and DAC9 amendments.
On March 20, 2025, the Swedish Ministry of Finance issued a proposal to amend the Global Minimum Tax Act. The final draft law was published by the government on August 14, 2025. The purpose of the draft law is to implement the provisions of the June 2024 OECD Administrative Guidance into domestic law.
On August 13, 2025, Canada issued draft legislative proposals to amend its Global Minimum Tax Act to provide for aspects of the June 2024 and January 2025 OECD Administrative Guidance.
Many jurisdictions will require GloBE registration for administrative purposes, however, the law issued to date has been inconsistent. We outline the GloBE registration obligations from the domestic legislation (enacted and draft) issued to date, with citations and links to relevant laws.
South Koreas 2025 Tax Reform Proposal (announced on July 31, 2025), provides that a QDMTT will be applied from January 1, 2026.
On July 24, 2025, the Luxembourg Government issued:
– a draft law to amend its Minimum Tax Law to provide for the January 2025 OECD Administrative Guidance and the EU DAC 9 GIR filing requirements: and
– a draft Regulation which includes the format of the GIR
On July 16, 2025, Kuwait updated its electronic registration portal to include Pillar 2 registration for in-scope groups.
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