Income Inclusion Rule: allocation to the Parent Entity
- Applies
- FY2024 onwards
- Reviewed
- Rule
- P2-IIRALLOC-2024.1
How much top-up tax does a parent pay under the IIR?
Its Allocable Share: the low-taxed entity's top-up tax times the parent's inclusion ratio, less what a lower parent applying a Qualified IIR takes.
Per GloBE Model Rules (Pillar Two), December 2021, Article 2.2, Allocation of Top-up Tax under the IIR
A Parent Entity's Allocable Share of the Top-up Tax of a Low-Taxed Constituent Entity is the Top-up Tax of that entity multiplied by the Parent Entity's Inclusion Ratio for the Fiscal Year. The Inclusion Ratio is the GloBE Income of the Low-Taxed Constituent Entity, reduced by the amount of that income attributable to Ownership Interests held by other owners, divided by its GloBE Income. A Parent Entity that owns its interest indirectly through an Intermediate Parent Entity or a Partially-Owned Parent Entity that applies a Qualified IIR reduces its Allocable Share by the portion of it that the lower entity brings into charge under that Qualified IIR.
It is the amount of tax the Income Inclusion Rule charges to this parent. Top-up Tax not brought into charge here is what the Undertaxed Profits Rule collects.
A ratio, and an offset
2.2 and 2.3 — the formulas
- 2.2.1 — Allocable Share = Top-up Tax of the Low-Taxed Constituent Entity × Inclusion Ratio
- 2.2.2 — Inclusion Ratio = (GloBE Income − the part attributable to other owners) ÷ GloBE Income
- 2.3.2 — the Allocable Share is reduced by the portion brought into charge lower in the chain under a Qualified IIR
The parent pays only its own share
A parent owning 60% of an entity whose other 40% is held by outside owners is charged 60% of the Top-up Tax, not the whole. The income attributable to other owners is worked out as Article 2.2.3 prescribes, by a hypothetical consolidation, and arrives here as a figure.
A lower parent's share is not capped by the UPE's
Each Parent Entity's share follows its own direct and indirect Ownership Interests. Where a UPE with no Qualified IIR owns 90% of an Intermediate Parent Entity that owns all of a low-taxed entity, the Intermediate Parent Entity's share is the whole Top-up Tax, not 90% of it. It is the entity's GloBE Income that is allocated — not its accounting profit after consolidation eliminations — and for a Flow-through Entity the total leaves out income allocated to owners outside the Group.
The ratio lies between nil and one
Income attributable to other owners cannot exceed the entity's GloBE Income, and an entity with no GloBE Income has no ratio. Either is refused as a question. Where Article 5.4.3 deems a GloBE Income because the Top-up Tax arises without income this year, the caller supplies that figure.
The offset cannot take the charge below nil
A larger amount brought into charge lower down than the share leaves nil, not a credit carried elsewhere. The offset applies to the share after the ratio, not to the whole Top-up Tax.
When the offset is made
The reduction is made when the Top-up Tax is allocated between the Parent Entities, not once the lower entity has paid. It is limited to the part of the upper parent's share that is attributable to interests held through the lower parent that applies the rule.
Order of testing
- 1
Inputs requiring your determination
The Top-up Tax, the entity's GloBE Income and the income attributable to other owners must be supplied; nil must be entered, not omitted.
- 2
Inclusion Ratio
The ratio must lie between nil and one; the share is the Top-up Tax multiplied by it.
- 3
IIR offset mechanism
An amount already brought into charge lower in the chain reduces the share, and not below nil.
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.
No outside owners
A parent holding the whole of a low-taxed subsidiary with Top-up Tax of EUR 10 million.
Computed
Top-up Tax of EUR 10,000,000 is charged to the Parent Entity for FY2026 as computed: the Top-up Tax of EUR 10,000,000 multiplied by an Inclusion Ratio of 100% — the entity's GloBE Income of EUR 100,000,000 less EUR 0 attributable to other owners, over the whole. Based on the figures you supplied.
Workings
- Top-up Tax of the Low-Taxed Constituent EntityArticle 2.2.1 — as supplied
- EUR 10,000,000
- GloBE Income of the Low-Taxed Constituent EntityArticle 2.2.2(b) — as supplied
- EUR 100,000,000
- Income attributable to other ownersArticle 2.2.2(a) — as supplied
- EUR 0
- Inclusion RatioArticle 2.2.2 — the income not held by other owners, over the whole
- 100%
- Allocable Share of the Top-up TaxArticle 2.2.1 — the Top-up Tax multiplied by the Inclusion Ratio
- EUR 10,000,000
- Top-up Tax charged to the Parent EntityArticle 2.2.1 — the Allocable Share
- EUR 10,000,000
Decided by the inclusion ratio
A 60% parent
Outside owners hold 40% of the income, so the parent pays 60% of the Top-up Tax.
Computed
Top-up Tax of EUR 6,000,000 is charged to the Parent Entity for FY2026 as computed: the Top-up Tax of EUR 10,000,000 multiplied by an Inclusion Ratio of 60% — the entity's GloBE Income of EUR 100,000,000 less EUR 40,000,000 attributable to other owners, over the whole. Based on the figures you supplied.
Workings
- Top-up Tax of the Low-Taxed Constituent EntityArticle 2.2.1 — as supplied
- EUR 10,000,000
- GloBE Income of the Low-Taxed Constituent EntityArticle 2.2.2(b) — as supplied
- EUR 100,000,000
- Income attributable to other ownersArticle 2.2.2(a) — as supplied
- (EUR 40,000,000)
- Inclusion RatioArticle 2.2.2 — the income not held by other owners, over the whole
- 60%
- Allocable Share of the Top-up TaxArticle 2.2.1 — the Top-up Tax multiplied by the Inclusion Ratio
- EUR 6,000,000
- Top-up Tax charged to the Parent EntityArticle 2.2.1 — the Allocable Share
- EUR 6,000,000
Decided by the inclusion ratio
An intermediate parent under a 90% UPE with no IIR
The Commentary's case: the UPE, in a jurisdiction without a Qualified IIR, owns 90% of an Intermediate Parent Entity, which owns all of a low-taxed subsidiary. Nothing of the subsidiary's income is attributable to other owners at the Intermediate Parent Entity's level, so it pays the whole Top-up Tax.
Computed
Top-up Tax of EUR 10,000,000 is charged to the Parent Entity for FY2026 as computed: the Top-up Tax of EUR 10,000,000 multiplied by an Inclusion Ratio of 100% — the entity's GloBE Income of EUR 100,000,000 less EUR 0 attributable to other owners, over the whole. Based on the figures you supplied.
Workings
- Top-up Tax of the Low-Taxed Constituent EntityArticle 2.2.1 — as supplied
- EUR 10,000,000
- GloBE Income of the Low-Taxed Constituent EntityArticle 2.2.2(b) — as supplied
- EUR 100,000,000
- Income attributable to other ownersArticle 2.2.2(a) — as supplied
- EUR 0
- Inclusion RatioArticle 2.2.2 — the income not held by other owners, over the whole
- 100%
- Allocable Share of the Top-up TaxArticle 2.2.1 — the Top-up Tax multiplied by the Inclusion Ratio
- EUR 10,000,000
- Top-up Tax charged to the Parent EntityArticle 2.2.1 — the Allocable Share
- EUR 10,000,000
Decided by the inclusion ratio
Part already charged lower in the chain
An intermediate parent has already brought EUR 4 million into charge under a Qualified IIR.
Computed
Top-up Tax of EUR 6,000,000 is charged to the Parent Entity for FY2026 as computed: the Top-up Tax of EUR 10,000,000 multiplied by an Inclusion Ratio of 100% — the entity's GloBE Income of EUR 100,000,000 less EUR 0 attributable to other owners, over the whole, less EUR 4,000,000 already brought into charge lower in the chain (Article 2.3). Based on the figures you supplied.
Workings
- Top-up Tax of the Low-Taxed Constituent EntityArticle 2.2.1 — as supplied
- EUR 10,000,000
- GloBE Income of the Low-Taxed Constituent EntityArticle 2.2.2(b) — as supplied
- EUR 100,000,000
- Income attributable to other ownersArticle 2.2.2(a) — as supplied
- EUR 0
- Inclusion RatioArticle 2.2.2 — the income not held by other owners, over the whole
- 100%
- Allocable Share of the Top-up TaxArticle 2.2.1 — the Top-up Tax multiplied by the Inclusion Ratio
- EUR 10,000,000
- Brought into charge lower in the chainArticle 2.3.2 — as supplied; the Allocable Share is reduced by it
- (EUR 4,000,000)
- Top-up Tax charged to the Parent EntityArticle 2.3 — the Allocable Share less the amount brought into charge lower in the chain, and not below nil
- EUR 6,000,000
Decided by the inclusion ratio
Offset exceeds the share
More brought into charge lower down than this parent's share: nil, not a credit.
Computed
No Top-up Tax is charged to the Parent Entity for FY2026 as computed: its Allocable Share of EUR 10,000,000 is fully offset by the EUR 25,000,000 already brought into charge lower in the chain under a Qualified IIR (Article 2.3), and an offset does not go below nil. Based on the figures you supplied.
Workings
- Top-up Tax of the Low-Taxed Constituent EntityArticle 2.2.1 — as supplied
- EUR 10,000,000
- GloBE Income of the Low-Taxed Constituent EntityArticle 2.2.2(b) — as supplied
- EUR 100,000,000
- Income attributable to other ownersArticle 2.2.2(a) — as supplied
- EUR 0
- Inclusion RatioArticle 2.2.2 — the income not held by other owners, over the whole
- 100%
- Allocable Share of the Top-up TaxArticle 2.2.1 — the Top-up Tax multiplied by the Inclusion Ratio
- EUR 10,000,000
- Brought into charge lower in the chainArticle 2.3.2 — as supplied; the Allocable Share is reduced by it
- (EUR 25,000,000)
- Top-up Tax charged to the Parent EntityArticle 2.3 — the Allocable Share less the amount brought into charge lower in the chain, and not below nil
- EUR 0
Decided by the iir offset mechanism
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
3 inputs still need your determination:
- What is the Top-up Tax of the Low-Taxed Constituent Entity for the Fiscal Year, calculated under Chapter 5 (Article 2.2.1)?
- What is the GloBE Income of the Low-Taxed Constituent Entity for the Fiscal Year (Article 2.2.2)? Where the Top-up Tax arises with no income in the year, Article 5.4.3 deems one: the Top-up Tax allocated to the entity divided by the Minimum Rate.
- How much of that GloBE Income is attributable to Ownership Interests held by other owners — persons that are not Group Entities — determined as Article 2.2.3 describes by a hypothetical consolidation? Enter nil if the Parent Entity and the group hold all of it.
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
GloBE Model Rules (Pillar Two), December 2021 — Article 2.2, Allocation of Top-up Tax under the IIR
The article this rule encodes; Articles 2.2.1 to 2.2.3
https://www.oecd.org/content/dam/oecd/en/publications/reports/2021/12/tax-challenges-arising-from-digitalisation-of-the-economy-global-anti-base-erosion-model-rules-pillar-two_eed81a23/782bac33-en.pdfGloBE Model Rules (Pillar Two), December 2021 — Article 2.3, IIR Offset Mechanism
The reduction for amounts brought into charge lower in the chain
https://www.oecd.org/content/dam/oecd/en/publications/reports/2021/12/tax-challenges-arising-from-digitalisation-of-the-economy-global-anti-base-erosion-model-rules-pillar-two_eed81a23/782bac33-en.pdfConsolidated Commentary to the GloBE Model Rules (May 2026) — Commentary to Articles 2.2 and 2.3, paragraphs 15 and 27 to 40
The Inclusion Ratio, the hypothetical consolidation, Flow-through Entities, and the timing and limit of the offset
https://www.oecd.org/content/dam/oecd/en/publications/reports/2026/05/tax-challenges-arising-from-the-digitalisation-of-the-economy-consolidated-commentary-to-the-global-anti-base-erosion-model-rules-2026_24289ddf/4377e89f-en.pdf