Who is in scope for Pillar 2?

The revenue threshold

The GloBE rules apply to multinational enterprise (MNE) groups that have annual consolidated revenue of at least EUR 750 million in at least two of the four fiscal years immediately preceding the tested fiscal year. This is the same threshold used for Country-by-Country Reporting (CbCR) under BEPS Action 13, which was a deliberate design choice; it means the population of in-scope groups for Pillar 2 largely mirrors the population already filing CbCR reports.

A few important points on the threshold:

• Consolidated revenue: The figure is based on the group's consolidated financial statements, prepared under the accounting standard used by the Ultimate Parent Entity (UPE). This means it includes revenue from all entities that are consolidated line by line, but excludes revenue from entities accounted for under the equity method.
• Currency conversion: For groups that do not report in euros, revenue must be converted using the average exchange rate for the relevant fiscal year. The EUR 750 million threshold is fixed; it is not adjusted for inflation.
• Two of four years: The "two of four" test provides a smoothing mechanism. A group that has a one-off spike in revenue that pushes it above EUR 750 million in a single year will not immediately fall in scope. Conversely, a group that dips below the threshold for one year does not immediately fall out of scope.
• Large domestic groups: Some jurisdictions extend the application of their domestic minimum top-up tax to large domestic groups (those with consolidated revenue above EUR 750 million but operating in only one jurisdiction). This is permitted under the GloBE framework but is not mandated by the OECD Model Rules.

What is an MNE group?

Under the GloBE rules, an MNE group is any group of entities that are related through ownership or control, that are required to prepare consolidated financial statements (or would be required to if their equity interests were traded on a public stock exchange), and that have at least one entity or permanent establishment in a jurisdiction other than the jurisdiction of the Ultimate Parent Entity.

The key concepts in this definition are:

Ultimate Parent Entity (UPE)

The UPE is the entity at the top of the ownership chain that is required to prepare consolidated financial statements and is not itself consolidated by another entity. In most cases, this is the listed holding company or the top-level parent company of a private group. The UPE is the anchor point for the entire GloBE computation; it determines the accounting standard used, the fiscal year, and the primary filing jurisdiction for the GloBE Information Return.

Constituent Entities

A constituent entity (CE) is any entity that is included in the consolidated financial statements of the MNE group, or that would be included if the UPE prepared consolidated financial statements in accordance with an acceptable financial accounting standard. This definition captures:

• Subsidiaries that are consolidated line by line
• Permanent establishments (PEs) of any group entity
• Entities that are excluded from consolidation solely on grounds of size or materiality
• Entities that are excluded from consolidation because they are held for sale

Importantly, the definition is broad. Even dormant entities, newly incorporated entities with no activity, or entities that are about to be disposed of may be constituent entities for GloBE purposes.

Intermediate Parent Entities (IPEs) and Partially-Owned Parent Entities (POPEs)

These concepts matter primarily for the application of the Income Inclusion Rule (IIR). An IPE is a constituent entity that directly or indirectly owns an interest in another constituent entity in the same group and is not the UPE. A POPE is a constituent entity where more than 20% of the ownership interest in its profits is held by persons outside the group. POPEs receive special treatment under the IIR, as they may be required to apply the rule independently of the UPE.

Excluded entities

Certain types of entities are entirely excluded from the GloBE rules, even if they are part of a group that exceeds the revenue threshold. The excluded entity categories are:

An election can also be made to treat certain entities as excluded entities under specific conditions; this is covered in the chapter on elections.

Joint ventures

Joint ventures (JVs) receive special treatment under the GloBE rules. A JV entity is defined as an entity whose financial results are reported under the equity method in the consolidated financial statements of the UPE, provided that the MNE group holds directly or indirectly at least 50% of the ownership interest.

JV entities and their subsidiaries are treated as a separate MNE group for GloBE purposes. This means:

• The ETR is computed separately for the JV group, independently of the main MNE group.
• Any top-up tax attributable to the JV is allocated to the MNE group member that holds the JV interest, in proportion to its ownership share.
• The JV's income and taxes are not blended with those of the main group for jurisdictional ETR purposes.

This separate treatment prevents groups from using JV structures to dilute or inflate their jurisdictional ETR. It also ensures that the JV's tax position is assessed on its own merits.

Permanent establishments

Permanent establishments (PEs) are treated as separate constituent entities for GloBE purposes, located in the jurisdiction where the PE is situated (not the jurisdiction of the head office). This is consistent with the general principle that the GloBE rules allocate income and taxes to the jurisdiction where they are treated as arising for tax purposes.

The treatment of PEs involves several specific rules:

• Income allocation: Income attributable to a PE is determined by reference to the applicable tax treaty or, in the absence of a treaty, the domestic law of the PE jurisdiction. The same income is removed from the head office entity's GloBE income to avoid double counting.
• Taxes on PE income: Taxes imposed by the PE jurisdiction on the PE's income are allocated to the PE. Taxes imposed by the head office jurisdiction on the PE's income (for example, under a credit system) are also allocated to the PE, subject to certain limitations.
• Stateless income: If income cannot be attributed to any PE or constituent entity, it is treated as stateless income of the head office entity. Stateless income is effectively treated as arising in its own separate jurisdiction, with a separate ETR computation. This prevents stateless income from being blended with other income of the head office jurisdiction.

Flow-through entities

Flow-through entities, such as partnerships, trusts, and certain transparent entities, present particular challenges under the GloBE rules because their income may be taxed in the hands of their owners rather than at the entity level. The treatment depends on the nature of the entity and its position in the group structure:

• If the flow-through entity is the UPE, its income is generally allocated to its owners for GloBE purposes, unless it is subject to tax in its own jurisdiction.
• If the flow-through entity is a constituent entity below the UPE, its income and taxes may be allocated to the jurisdiction of the entity or to the jurisdiction of its owner, depending on the local tax treatment.
• The GloBE rules contain specific provisions to avoid double counting or gaps: income must be picked up somewhere, and the allocation rules aim to ensure it is picked up exactly once.

Minority-owned constituent entities

A minority-owned constituent entity (MOCE) is a constituent entity in which the MNE group holds a direct or indirect ownership interest of 30% or less. MOCEs and their subsidiaries are subject to a separate ETR computation, similar to the treatment of JVs. The top-up tax for MOCEs is calculated independently and then allocated to the group member that holds the ownership interest.

Practical steps for determining scope

For groups approaching Pillar 2 for the first time, the scoping exercise typically involves the following steps:

1. Confirm the revenue threshold: Review consolidated revenue for the four fiscal years preceding the first in-scope year. If revenue exceeds EUR 750 million in at least two of those four years, the group is in scope.
2. Identify the UPE: Determine which entity sits at the top of the consolidation. In complex structures (e.g., with stapled entities or dual-listed companies), this may require careful analysis.
3. Map all constituent entities: List every entity included in (or that should be included in) the consolidated financial statements, including PEs. This is the starting population for the GloBE computation.
4. Identify excluded entities: Review each constituent entity against the excluded entity categories. Remove any that qualify from the GloBE population.
5. Identify JVs and MOCEs: Flag any entities that meet the JV or MOCE definitions, as these will require separate ETR computations.
6. Map entities to jurisdictions: Group the remaining constituent entities by jurisdiction. The ETR computation is performed at the jurisdictional level, so understanding how many entities are in each jurisdiction is a necessary foundation.