The Global Minimum Tax | Selected Issues on Pillar Two

1. Introduction

Investment entities are subject to unique treatment not only in domestic legal systems and international tax in general but also within Pillar Two. It is difficult to offer a general blueprint for taxing investment funds and their investors, and the framework of Pillar Two is no exception. The calculation of the effective tax rate (ETR) of investment entities follows a similar methodology to the standard calculation but with some relevant nuances. On the one hand, investment entities conS. 506stitute one of the three exceptions to the jurisdictional blending approach which otherwise is an essential feature of Pillar Two. On the other hand, investment funds and real estate investment vehicles (REIVs) that qualify as the ultimate parent entity (UPE) are not subject to the income inclusion rule (IIR) and under taxed payment rule (UTPR) (global anti-base erosion rules (GloBE Rules)) as they are deemed excluded entities. This framing requires a careful analysis of the special attributes of investment entities within MNE groups to avoid the misapplication of the GloBE Rules.

Calculating the ETR of investment entities involves conducting a series of previous tests and elections. T...