Income Inclusion Rule

2.1.1 to 2.1.5 — who applies it

• 2.1.1 — the Ultimate Parent Entity, if located in the jurisdiction
• 2.1.2 — an Intermediate Parent Entity located in the jurisdiction
• 2.1.3 — but not if the Ultimate Parent Entity, or a higher Intermediate Parent Entity with a Controlling Interest in it, is required to apply a Qualified IIR
• 2.1.4 — a Partially-Owned Parent Entity located in the jurisdiction, notwithstanding 2.1.1 to 2.1.3
• 2.1.5 — but not if it is wholly owned by another Partially-Owned Parent Entity required to apply a Qualified IIR

A Partially-Owned Parent Entity is not switched off by the Ultimate Parent Entity

Article 2.1.4 applies "notwithstanding Articles 2.1.1 to 2.1.3", so the blocking conditions of 2.1.3 are not asked of it; its only exit is 2.1.5. Asking the wrong question of the wrong position is the likeliest way to get this rule wrong, so each position is asked only its own.

2.1.6 — only a low-taxed entity outside the jurisdiction

A Parent Entity applies the rule with respect to a Low-Taxed Constituent Entity that is not located in the implementing jurisdiction. Tax on a domestic entity is a matter for the domestic tax or for a Qualified Domestic Minimum Top-up Tax.

"Required to apply a Qualified IIR" is the reader's determination

It is a question of another jurisdiction's law and of its qualified status.

Points the Commentary settles

• "At any time during the Fiscal Year": a parent applies the rule to an entity it bought or sold during the year; the part-year is reflected in the Top-up Tax, not in whether the rule applies
• No Controlling Interest is needed: an Intermediate Parent Entity holding 10% of a low-taxed group entity applies the rule to that share
• A Permanent Establishment is never a Parent Entity — interests held through it are treated as held by its Main Entity — and neither is an Investment Entity or an Insurance Investment Entity
• "Required to apply a Qualified IIR" means required by law in force: a UPE whose jurisdiction has legislated a rule not yet in effect, or a UPE that is an Excluded Entity, does not switch off the parents below it
• A higher Intermediate Parent Entity switches off a lower one only if it holds a Controlling Interest in it. Where it does not, both apply the rule and the offset in Article 2.3 prevents double taxation

A jurisdiction may extend it to domestic entities

Article 2.1.6 limits the rule to low-taxed entities outside the parent's jurisdiction, and to Stateless Constituent Entities. A jurisdiction may go further and require a parent to apply it to low-taxed entities in its own jurisdiction, and to the parent itself. An Income Inclusion Rule so extended is still a Qualified IIR and keeps its place in the order.

What can switch it off

A Qualified Domestic Minimum Top-up Tax in the subsidiary's jurisdiction is credited first and usually leaves nothing for the Income Inclusion Rule to collect; where that tax meets the QDMTT Safe Harbour the Top-up Tax is deemed nil by election. For Fiscal Years commencing in 2026 or later, a group whose Ultimate Parent Entity is in a jurisdiction with a Qualified Side-by-Side Regime may elect to have its Top-up Tax deemed nil for the Income Inclusion Rule and the Undertaxed Profits Rule alike. Each is a separate rule in this ledger.