Article 10 of the OECD Model Rules defines an entity as either:
– a legal person (except an individual); or
– any arrangement that prepares separate financial accounts.
Note that the First Set of OECD Administrative Guidance also excludes government agencies (both central and local government) that carry out government functions.
The first limb above would generally catch foundations, whilst the second would catch trusts.
This means that trusts and foundations are squarely within the Pillar Two rules and could be a low-taxed entity, an intermediate entity/partially owned parent entity or even an ultimate parent entity (UPE).
Under Article 1.4.1 of the OECD Model Rules, a UPE for the Pillar Two rules is:
Whether a trust is a UPE is an important consideration as (1) in many cases the UPE is required to apply the income inclusion rule to account for top-up tax and (2) the definition of an MNE group hinges on the relationship between the group companies and the UPE.
For instance, take this scenario:
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.
Top-up taxes under a QDMTT are added to covered taxes of a CFC but only for the purposes of calculating the allocation of Blended CFC Taxes. The way the rules operate is aimed at minimising unrelievable CFC taxes under Blended CFC Regimes. Read more.
The clarifications and additions to the Commentary to the Pillar Two GloBE Rules provided by the OECDs Administrative and Safe Harbours Guidance, means that there are now up to four jurisdictional effective tax rates (ETRs) that may need to be calculated to determine the impact of the GloBE Rules.
Section 20 of Bill T/11920 of May 13, 2025 (issued as part of the 2025 Spring Tax Package), proposes to amend the registration deadline to the last day of the second month following the last day of the tax year.
The definition of CFC taxes that are restricted in the GloBE rules is much narrower than under many domestic CFC regimes. In this article we look at this issue.
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.
Law 3/2025, of 29 April, was published in the Spanish Official State Gazette on April 30, 2025. This amends the Economic Agreement with the Basque Country and includes a new Article 20bis for the application of the Pillar 2 Global Minimum Tax.
In this article we look at some of the most significant issues to consider including the determination of when and how deals can bring groups within the scope of Pillar Two, specific considerations for private equity funds, differences in GloBE and domestic tax treatment and potential restrictions on post-acquisition transfers.
The Pillar Two GloBE treatment of corporate investments will depend to a large extent on the nature of the activities, the accounting treatment and the ownership interest.
On April 30, 2025, the Swiss Federal Council issued a proposal to amend the Minimum Tax Ordinance to provide for the OECD GIR provisions, as well as some other small amendments.
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