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.
On October 5, 2025, Israel published a consultation on a draft law for a domestic minimum tax (intended to be a Qualified Domestic Minimum Top-Up Tax or ‘QDMTT’) from January 1, 2026.
On October 3, 2025, Turkey published the Draft Communique on the Minimum Tax Law, and the Draft GIR, for consultation. Whilst Turkey has enacted its Minimum Tax Law, a lot of the detailed application of the GloBE rules was left to a further Regulation. This Communique therefore provides for the detailed rules for the implementation of the GloBE rules in Turkey.
On September 18, 2025, Croatia opened a consultation on a Draft Bill to amend its Minimum Tax Act. The amendments are primarily to amend the QDMTT accounting standard so that the Croatian QDMTT qualifies for the QDMTT Safe Harbour and to provide for the notification deadline for appointing a designated filing entity.
On September 26, 2025, Hong Kong updated its Pillar 2 guidance to include information on its Pillar 2 Portal, applications for Group Codes and mandatory e-filing of profit tax returns for Pillar 2 groups.
On September 29, 2025, the Federal Ministry of Finance opened a consultation on a Draft Regulation for the implementation of the Minimum Tax Act. This provides for compliance rules for the exchange of the GIR and simplified reporting.
We keep track of all domestic Pillar Two forms issued to date, including links to domestic forms and notices for each relevant jurisdiction.
On September 16, 2025, The Netherlands Cabinet issued a Draft Bill for the Second Amendment to the Minimum Tax Act to implement the December 2023, June 2024 and January 2025 OECD Administrative Guidance (as well as the EU DAC 9 proposals).
Japan has launched its Multinational Enterprise Information Reporting Portal for filing Pillar 2 returns.
On 6 September 2025, Nigeria’s Tax Act 2025 was published in the Official Gazette. This includes a DMTT (without any of the detailed GloBE adjustments yet applying).
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