TaxTMI 
TaxTMI 
TaxTMI 
Friends
Simply stated, the OECD Pillar two involves in-scope MNE’s paying a ‘topup tax’ at the parent company level if income made down the ownership chain are taxed below the global minimum rate of 15%. This requires to be calculated under the provisions of the GloBE Rules and the first step is to identify the constituent entities of the group that are subject to Pillar Two and their role in respect of this minimum taxation (e.g., Ultimate Parent Entity (UPE), Intermediate Parent Entity (IPE), Minority owned Parent Entity (MOPE), Partially owned Parent Entity (PoPE), Permanent Establishment, Tax Transparent Entity, Joint Venture, etc.).
In this edition, we will discuss special rules under the Pillar Two that apply to Minority Owned Constituent Entities.
Special rules apply to minority-owned entities given the UPE owns only 30% or less of the ownership interest. They are treated separately for the purposes of the jurisdictional blending calculation, because if they were included, the non-group owners would effectively bear some of the top-up tax levied.
Article 10 of the GloBE Rules defines a Minority-Owned Constituent Entity as an entity where the UPE owns directly or indirectly 30% or less of the ownership interest but the UPE holds the controlling interest.
On the same basis, Minority-Owned Sub-Groups (defined as a sub-group within the MNE Group comprised of a Minority-Owned Parent Entity and its Minority-Owned Subsidiaries) are treated as a separate MNE group.
Therefore, the adjusted covered taxes and the GloBE Income of the minority-owned subgroup are excluded from the jurisdictional GloBE ETR calculation and any top-up tax for the rest of the MNE group (i.e., excluding the Minority-Owner Sub-Group) are calculated separately. This can result in an MNE group having to calculate two or more ETR computations in a jurisdiction, one for members of the Minority-Owned Subgroup and the other for the rest of the MNE Group.
Further, as per Article 5.6.2 of the GloBE Rules, a Minority-Owned Constituent Entity that is not a member of a Minority-Owned Subgroup, the ETR and the top-up tax is computed on an entity basis. Its Adjusted Covered Taxes and GloBE Income or Loss are excluded from the determination of the remainder of the MNE Group’s ETR.
These provisions effectively prevent the 70% or more of the Net Income or Loss and Adjusted Covered Taxes of a Minority-Owner Constituent Entity, or a Minority-Owned Subgroup, which do not effectively belong to the UPE, from being blended with the Net Income or Loss and Adjusted Covered Taxes of the other Constituent Entities of the MNE Group.
It is worth noting that these special provisions do not apply if the Minority-Owned Constituent Entity is an Investment Entity. Therefore, the special provisions applicable to Investment Entities in Articles 7.4 and 7.5 have priority and apply in these situations.
Minority-Owned Entities – Example
UPE is the ultimate parent entity of an MNE group within the scope of the Pillar Two GloBE rules. It has a group structure of: UPE PCO S CO 3S CO 1S CO 4S CO 2 EXAMPLE - MINORITY OWNED SUB-GROUP 100% 10%10%20% 100% 90%90% The UPE is located in Country X. It owns 20% of P Co, located in Country Y. P Co owns 90% of S Co 1 and S Co 2, both located in Country A. The remaining 10% ownership of S Co 1 and S Co 2 is owned by the UPE. The UPE also fully owns two other constituent entities in Country A, S Co 3 and S Co 4. Let’s assume GloBE income and adjusted covered taxes as: S Co 1 = GloBE income of €10 million and adjusted covered taxes of €2 million. S Co 2 = GloBE income of €20 million and adjusted covered taxes of €3 million S Co 3 = GloBE income of €15 million and adjusted covered taxes of €3 million S Co 4 = GloBE income of €20 million and adjusted covered taxes of €2 million UPE is the ultimate parent of the minority-owned sub-group, P Co Group, viz. it has 10% direct ownership of S Co 1 and and S Co 2 as well as 18% indirect ownership of each www.vilgst.com Page - 3 - of 3 (i.e. 28% effective ownership). Assuming that the UPE also has a controlling interest, then P Co and S Co 1 and S Co 2 would be deemed a minority-owned sub-group. As such, S Co 1 and S Co 2 would calculate their GloBE ETR separately from the other entities in Country A. In this case, the minority-owned sub-group would have a GloBE ETR of 16.7% (i.e. 5/30). The other entities in the jurisdiction (assuming neither was an investment entity) would have a jurisdictional ETR of 14.2857% (i.e. 5/35). Therefore, top-up tax may be due for the jurisdiction. If the minority-owned sub-group was not treated as a separate MNE group for jurisdictional blending purposes, the jurisdictional ETR would be 15.3846% (i.e. 10/65) and no top-up tax would have been levied. Friends Simply stated, the OECD Pillar two involves in-scope MNE’s paying a ‘topup tax’ at the parent company level if income made down the ownership chain are taxed below the global minimum rate of 15%. This requires to be calculated under the provisions of the GloBE Rules and the first step is to identify the constituent entities of the group that are subject to Pillar Two and their role in respect of this minimum taxation (e.g., Ultimate Parent Entity (UPE), Intermediate Parent Entity (IPE), Minority owned Parent Entity (MOPE), Partially owned Parent Entity (PoPE), Permanent Establishment, Tax Transparent Entity, Joint Venture, etc.). In this edition, we will discuss special rules under the Pillar Two that apply to Minority Owned Constituent Entities. Special rules apply to minority-owned entities given the UPE owns only 30% or less of the ownership interest. They are treated separately for the purposes of the jurisdictional blending calculation, because if they were included, the non-group owners would effectively bear some of the top-up tax levied. Article 10 of the GloBE Rules defines a Minority-Owned Constituent Entity as an entity where the UPE owns directly or indirectly 30% or less of the ownership interest but the UPE holds the controlling interest. On the same basis, Minority-Owned Sub-Groups (defined as a sub-group within the MNE Group comprised of a Minority-Owned Parent Entity and its Minority-Owned Subsidiaries) are treated as a separate MNE group. Therefore, the adjusted covered taxes and the GloBE Income of the minority-owned subgroup are excluded from the jurisdictional GloBE ETR calculation and any top-up tax for the rest of the MNE group (i.e., excluding the Minority-Owner Sub-Group) are calculated separately. This can result in an MNE group having to calculate two or more ETR computations in a jurisdiction, one for members of the Minority-Owned Subgroup and the other for the rest of the MNE Group. Further, as per Article 5.6.2 of the GloBE Rules, a Minority-Owned Constituent Entity that is not a member of a Minority-Owned Subgroup, the ETR and the top-up tax is computed on an entity basis. Its Adjusted Covered Taxes and GloBE Income or Loss are excluded from the determination of the remainder of the MNE Group’s ETR. ARTICLE www.vilgst.com Page - 2 - of 3 These provisions effectively prevent the 70% or more of the Net Income or Loss and Adjusted Covered Taxes of a Minority-Owner Constituent Entity, or a Minority-Owned Subgroup, which do not effectively belong to the UPE, from being blended with the Net Income or Loss and Adjusted Covered Taxes of the other Constituent Entities of the MNE Group. It is worth noting that these special provisions do not apply if the Minority-Owned Constituent Entity is an Investment Entity. Therefore, the special provisions applicable to Investment Entities in Articles 7.4 and 7.5 have priority and apply in these situations. Minority-Owned Entities – Example UPE is the ultimate parent entity of an MNE group within the scope of the Pillar Two GloBE rules. It has a group structure of: UPE PCO S CO 3S CO 1S CO 4S CO 2 EXAMPLE - MINORITY OWNED SUB-GROUP 100% 10%10%20% 100% 90%90% The UPE is located in Country X. It owns 20% of P Co, located in Country Y. P Co owns 90% of S Co 1 and S Co 2, both located in Country A. The remaining 10% ownership of S Co 1 and S Co 2 is owned by the UPE. The UPE also fully owns two other constituent entities in Country A, S Co 3 and S Co 4. Let’s assume GloBE income and adjusted covered taxes as: S Co 1 = GloBE income of €10 million and adjusted covered taxes of €2 million. S Co 2 = GloBE income of €20 million and adjusted covered taxes of €3 million S Co 3 = GloBE income of €15 million and adjusted covered taxes of €3 million S Co 4 = GloBE income of €20 million and adjusted covered taxes of €2 million UPE is the ultimate parent of the minority-owned sub-group, P Co Group, viz. it has 10% direct ownership of S Co 1 and and S Co 2 as well as 18% indirect ownership of each www.vilgst.com Page - 3 - of 3 (i.e. 28% effective ownership). Assuming that the UPE also has a controlling interest, then P Co and S Co 1 and S Co 2 would be deemed a minority-owned sub-group. As such, S Co 1 and S Co 2 would calculate their GloBE ETR separately from the other entities in Country A. In this case, the minority-owned sub-group would have a GloBE ETR of 16.7% (i.e. 5/30). The other entities in the jurisdiction (assuming neither was an investment entity) would have a jurisdictional ETR of 14.2857% (i.e. 5/35). Therefore, top-up tax may be due for the jurisdiction. If the minority-owned sub-group was not treated as a separate MNE group for jurisdictional blending purposes, the jurisdictional ETR would be 15.3846% (i.e. 10/65) and no top-up tax would have been levied. Friends Simply stated, the OECD Pillar two involves in-scope MNE’s paying a ‘topup tax’ at the parent company level if income made down the ownership chain are taxed below the global minimum rate of 15%. This requires to be calculated under the provisions of the GloBE Rules and the first step is to identify the constituent entities of the group that are subject to Pillar Two and their role in respect of this minimum taxation (e.g., Ultimate Parent Entity (UPE), Intermediate Parent Entity (IPE), Minority owned Parent Entity (MOPE), Partially owned Parent Entity (PoPE), Permanent Establishment, Tax Transparent Entity, Joint Venture, etc.). In this edition, we will discuss special rules under the Pillar Two that apply to Minority Owned Constituent Entities. Special rules apply to minority-owned entities given the UPE owns only 30% or less of the ownership interest. They are treated separately for the purposes of the jurisdictional blending calculation, because if they were included, the non-group owners would effectively bear some of the top-up tax levied. Article 10 of the GloBE Rules defines a Minority-Owned Constituent Entity as an entity where the UPE owns directly or indirectly 30% or less of the ownership interest but the UPE holds the controlling interest. On the same basis, Minority-Owned Sub-Groups (defined as a sub-group within the MNE Group comprised of a Minority-Owned Parent Entity and its Minority-Owned Subsidiaries) are treated as a separate MNE group. Therefore, the adjusted covered taxes and the GloBE Income of the minority-owned subgroup are excluded from the jurisdictional GloBE ETR calculation and any top-up tax for the rest of the MNE group (i.e., excluding the Minority-Owner Sub-Group) are calculated separately. This can result in an MNE group having to calculate two or more ETR computations in a jurisdiction, one for members of the Minority-Owned Subgroup and the other for the rest of the MNE Group. Further, as per Article 5.6.2 of the GloBE Rules, a Minority-Owned Constituent Entity that is not a member of a Minority-Owned Subgroup, the ETR and the top-up tax is computed on an entity basis. Its Adjusted Covered Taxes and GloBE Income or Loss are excluded from the determination of the remainder of the MNE Group’s ETR. ARTICLE www.vilgst.com Page - 2 - of 3 These provisions effectively prevent the 70% or more of the Net Income or Loss and Adjusted Covered Taxes of a Minority-Owner Constituent Entity, or a Minority-Owned Subgroup, which do not effectively belong to the UPE, from being blended with the Net Income or Loss and Adjusted Covered Taxes of the other Constituent Entities of the MNE Group. It is worth noting that these special provisions do not apply if the Minority-Owned Constituent Entity is an Investment Entity. Therefore, the special provisions applicable to Investment Entities in Articles 7.4 and 7.5 have priority and apply in these situations. Minority-Owned Entities – Example UPE is the ultimate parent entity of an MNE group within the scope of the Pillar Two GloBE rules. It has a group structure of: UPE PCO S CO 3S CO 1S CO 4S CO 2 EXAMPLE - MINORITY OWNED SUB-GROUP 100% 10%10%20% 100% 90%90% The UPE is located in Country X. It owns 20% of P Co, located in Country Y. P Co owns 90% of S Co 1 and S Co 2, both located in Country A. The remaining 10% ownership of S Co 1 and S Co 2 is owned by the UPE. The UPE also fully owns two other constituent entities in Country A, S Co 3 and S Co 4. Let’s assume GloBE income and adjusted covered taxes as: S Co 1 = GloBE income of €10 million and adjusted covered taxes of €2 million. S Co 2 = GloBE income of €20 million and adjusted covered taxes of €3 million S Co 3 = GloBE income of €15 million and adjusted covered taxes of €3 million S Co 4 = GloBE income of €20 million and adjusted covered taxes of €2 million UPE is the ultimate parent of the minority-owned sub-group, P Co Group, viz. it has 10% direct ownership of S Co 1 and and S Co 2 as well as 18% indirect ownership of each www.vilgst.com Page - 3 - of 3 (i.e. 28% effective ownership). Assuming that the UPE also has a controlling interest, then P Co and S Co 1 and S Co 2 would be deemed a minority-owned sub-group. As such, S Co 1 and S Co 2 would calculate their GloBE ETR separately from the other entities in Country A. In this case, the minority-owned sub-group would have a GloBE ETR of 16.7% (i.e. 5/30). The other entities in the jurisdiction (assuming neither was an investment entity) would have a jurisdictional ETR of 14.2857% (i.e. 5/35). Therefore, top-up tax may be due for the jurisdiction. If the minority-owned sub-group was not treated as a separate MNE group for jurisdictional blending purposes, the jurisdictional ETR would be 15.3846% (i.e. 10/65) and no top-up tax would have been levied.