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Excluded Entity Election

Excluded Entity Election

Excluded entities are not taken into account for the purposes of calculating the jurisdictional effective tax rate, any top-up tax payment and the imposition of top-up tax (the IIR and UTPR etc).

However, they are taken into account for the purposes of determining whether an MNE group is within the scope of the Pillar Two rules when applying the 750 million euro revenue threshold. For more information, see Scope.

Excluded Entities include:

• government entities;
• international organizations;
• non-profit organizations;
• pension funds;
• investment funds that are a UPE; and
• real estate investment vehicles that are a UPE.

Frequently, such entities would be outside the scope of the Pillar Two rules anyway as they wouldn’t be subject to a consolidation requirement for financial accounting purposes. 

Whilst Excluded Entities are generally outside the scope of most of the Pillar Two rules, a five-year election is available to treat an Excluded Entity as a constituent entity so that the general Pillar Two GloBE rules would then apply to it.  

You may be wondering why an MNE group would look to bring a company that is outside the Pillar Two rules, within the scope of the rules. 

There are a number of cases when this could be beneficial. Here’s an example of a typical scenario. 


Company A is a real estate investment fund that is the UPE of an MNE group (ie an Excluded Entity) which directly holds a number of subsidiaries.

Image showing 'Example Group Structure for Excluded Entity Election Example'.

However, it is subject to consolidation under the relevant accounting standard. If no election is made all of the subsidiaries would be subject to the Under-Taxed Payments rule, given Company A, as an Excluded Entity, would not be subject to the Income Inclusion Rule (IIR).

If Company A makes the election, the IIR applies and Company A would account for any top-up tax.

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