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Explicitly Conditional Taxes

Applies
FY2024 onwards
Reviewed
Rule
P2-ECT-2026.1
By

When is a conditional tax not a Covered Tax?

When it applies only if an IIR or UTPR applies elsewhere and the group is outside the side-by-side safe harbour. A severable surcharge alone is excluded.

Per Administrative Guidance on the Global Anti-Base Erosion Model Rules (Pillar Two), September 2026, Part 1, Explicitly Conditional Taxes

A Covered Tax does not include an Explicitly Conditional Tax: one that applies to a Constituent Entity under the condition that a Qualified IIR or Qualified UTPR applies to it in another jurisdiction and it is not eligible for the SbS Safe Harbour, or that does not apply to it under the condition that no such IIR or UTPR applies or that it is eligible for the SbS Safe Harbour. Where the condition attaches to a separate, severable levy or surcharge only that levy is excluded. For a Fiscal Year beginning before 1 January 2025 the tax is nevertheless treated as a Covered Tax if the condition was enacted before 30 November 2024 and the tax is no longer conditional for Fiscal Years beginning on or after 1 January 2025.

An excluded amount is left out of Adjusted Covered Taxes and is not added back to Financial Accounting Net Income or Loss. A DMTT, IIR or UTPR that is explicitly conditional is not a Covered Tax, and a DMTT that is one is not a QDMTT.

Where the line falls

Conditional

  • Inclusionary drafting: the tax applies only to an entity that is subject to a Qualified IIR or UTPR elsewhere and not eligible for the SbS Safe Harbour
  • Exclusionary drafting: the tax exempts an entity if no such IIR or UTPR applies, or it is eligible for the SbS Safe Harbour
  • The two are the same thing

Not conditional

  • A tax that applies without regard to those facts
  • A tax that applies only to Constituent Entities of groups above a consolidated revenue threshold

Whole tax or surcharge

Where the condition attaches to a separate, severable levy or surcharge — a surtax at a distinct rate on the same base — only that levy is excluded and the generally applicable tax remains a Covered Tax. Where it does not, the tax as a whole is excluded.

The 2024 exception

A Fiscal Year beginning before 1 January 2025, a condition enacted before 30 November 2024, and a tax that is no longer conditional for any Fiscal Year beginning on or after 1 January 2025 — all three, or the exception is lost.

Beyond Covered Taxes

A DMTT that is an Explicitly Conditional Tax is not a QDMTT, except for a time-limited derogation for a conditional DMTT applying from 1 January 2024, enacted before 30 November 2024 and with a sunset clause making it unconditional from 2025. Further guidance on other discriminatory features is due by 31 December 2026.

Order of testing

  1. 1

    Whether the tax is conditional

    On its own terms, in either drafting; a revenue threshold is not a condition.

  2. 2

    An Explicitly Conditional Tax

    The whole tax, or only a separate severable levy.

  3. 3

    The exception for Fiscal Years beginning before 2025

    Both limbs of the date test are required.

Examples

Illustrative scenarios — ours, not the authority’s — each computed live by this rule. Change any fact and the outcome is the rule’s, not a hand-written answer.

A whole conditional tax

A tax applies only to entities of groups subject to a Qualified IIR or UTPR in another jurisdiction, for a Fiscal Year beginning in 2026.

Computed

The tax is excluded from Covered Taxes as computed: it is an Explicitly Conditional Tax and the condition is not a separate, severable levy, so paragraph 23.2 treats the tax as a whole as conditional. It is left out of Adjusted Covered Taxes and not added back to Financial Accounting Net Income or Loss (paragraph 23.6). A DMTT, IIR or UTPR that is an Explicitly Conditional Tax is also not a Covered Tax (paragraph 23.5), and a DMTT that is one would not be a QDMTT, subject to the time-limited derogation in paragraph 118.5.2. Based on what you supplied.

Decided by the an explicitly conditional tax

A conditional surcharge

A tax is generally imposed at 10% and a separate 5% surcharge applies only to groups subject to a Qualified IIR or UTPR elsewhere. Only the surcharge is excluded.

Computed

Only the conditional levy is excluded from Covered Taxes as computed: the condition attaches to a separate, severable levy or surcharge, which paragraph 23.2 treats as a separate tax, so that levy is not a Covered Tax and the generally applicable tax remains one. The excluded amount is left out of Adjusted Covered Taxes and is not added back to Financial Accounting Net Income or Loss (paragraph 23.6). Based on what you supplied.

Decided by the an explicitly conditional tax

A revenue threshold

A tax applies only to groups above a consolidated revenue threshold, which is not a condition.

Computed

The tax is not an Explicitly Conditional Tax as computed: paragraph 23.3 provides that a tax is not conditional solely because it applies only to Constituent Entities of groups whose consolidated revenues meet a threshold. Whether it is a Covered Tax is otherwise a matter for Article 4.2. Based on what you supplied.

Decided by the whether the tax is conditional

The 2024 exception

A conditional tax enacted in October 2024 and unconditional from 2025, tested for a Fiscal Year beginning on 1 January 2024.

Computed

The tax is treated as a Covered Tax for this Fiscal Year as computed, although it is Explicitly Conditional: paragraph 23.4 so provides for a Fiscal Year beginning before 2025-01-01 (this one begins on 2024-01-01) where the condition was enacted before 2024-11-30 and the tax is no longer conditional for any Fiscal Year beginning on or after 1 January 2025. Based on what you supplied.

Decided by the exception for fiscal years beginning before 2025

Try it

Supply the facts and this rule computes the outcome in your browser, live. Leave a determination undecided and it blocks the result — it is never read as a no.

Not computed yet

1 input still need your determination:

  • On its own terms, is the tax conditional on a Qualified IIR or UTPR applying to the taxpayer in another jurisdiction (and the taxpayer not being eligible for the SbS Safe Harbour) — whether drafted to apply only in that case or to exempt taxpayers when it does not apply — or on nothing, or only on a group revenue threshold?

Computed in your browser from the figures you supply. Nothing is sent anywhere, and the result is a computation against a rule — reference, not tax advice.

Sources

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Reference, not tax advice.

Pankaj Agarwal — Tax Technology Leader