Browse all rules ↓

Insurance Investment Entities

Applies
FY2024 onwards
Reviewed
Rule
P2-IIE-2024.1
By

What is an Insurance Investment Entity under Pillar Two?

A fund-like entity backing insurance or annuity liabilities, wholly owned by a regulated insurer. It computes a stand-alone ETR and top-up tax.

Per GloBE Model Rules (Pillar Two), December 2021, Article 10.1, definition of Insurance Investment Entity

An Insurance Investment Entity is an Entity that would meet the definition of an Investment Fund or a Real Estate Investment Vehicle except that it is established in relation to liabilities under an insurance or annuity contract and is wholly owned by an Entity that is subject to regulation in its location as an insurance company. It computes a stand-alone Effective Tax Rate and Top-up Tax under Article 7.4 as an Investment Entity does. It may make the Article 7.5 tax transparency election if its owner is taxed on a mark-to-market or similar basis at a rate that equals or exceeds the Minimum Rate. The Taxable Distribution Method in Article 7.6 is not available to it.

Where the insurer is not taxed on market value, the election is not available and the Commentary says further consideration will be given to that case.

What the result turns on

All three conditions

  • It would meet the definition of an Investment Fund or Real Estate Investment Vehicle but for the insurance features
  • It is established in relation to liabilities under an insurance or annuity contract
  • It is wholly owned by an Entity regulated in its location as an insurance company

What it gets

  • A stand-alone ETR and Top-up Tax under Article 7.4, on the MNE Group's Allocable Share
  • The Article 7.5 tax transparency election — a Five-Year Election

What it does not get

The Taxable Distribution Method, which is for controlled Investment Entities only.

The condition for the election

The owner must be subject to tax under a mark-to-market or similar regime on the annual change in the fair value of its interest, at a rate that equals or exceeds the Minimum Rate. Where it is not, the election is not available and the position is for the Implementation Framework.

Order of testing

  1. 1

    The definition of an Insurance Investment Entity

    All three conditions.

  2. 2

    The Article 7.5 election

    Whether the owner's mark-to-market tax makes it available.

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 mark-to-market insurer

An investment pool wholly owned by a regulated insurer that is taxed on the market value of its interest at the Minimum Rate or more.

Computed

The Entity is an Insurance Investment Entity as computed: it would be an Investment Fund or Real Estate Investment Vehicle but for being established in relation to insurance or annuity liabilities and wholly owned by a regulated insurer. It computes a stand-alone Effective Tax Rate and Top-up Tax under Article 7.4 on the MNE Group's Allocable Share, as an Investment Entity does, and is not eligible for the Article 7.6 Taxable Distribution Method, which is confined to controlled Investment Entities. The Article 7.5 tax transparency election is available: its owner is taxed on a mark-to-market or similar basis at a rate that equals or exceeds the Minimum Rate. The election is a Five-Year Election and, once made, its income and Covered Taxes flow through to the owner. Based on what you supplied.

Decided by the article 7.5 election

An insurer not taxed on market value

The same pool where the insurer is not taxed that way.

Computed

The Entity is an Insurance Investment Entity as computed: it would be an Investment Fund or Real Estate Investment Vehicle but for being established in relation to insurance or annuity liabilities and wholly owned by a regulated insurer. It computes a stand-alone Effective Tax Rate and Top-up Tax under Article 7.4 on the MNE Group's Allocable Share, as an Investment Entity does, and is not eligible for the Article 7.6 Taxable Distribution Method, which is confined to controlled Investment Entities. The Article 7.5 election is not available: it requires the owner to be taxed on a mark-to-market or similar basis at a rate that equals or exceeds the Minimum Rate, and you have indicated its owner is not. The Commentary says further consideration will be given in the Implementation Framework to Insurance Investment Entities whose owners are not under such a regime, which is not decided here. Based on what you supplied.

Decided by the article 7.5 election

Not wholly owned

A pool with outside investors alongside the insurer.

Computed

The Entity is not an Insurance Investment Entity as computed: it is not wholly owned by an Entity regulated as an insurance company. All three conditions in Article 10.1 are required. If it meets the definition of an Investment Fund it is an Investment Entity instead (see investment-entity-elections). Based on what you supplied.

Decided by the definition of an insurance investment entity

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:

  • Would the Entity meet the definition of an Investment Fund or a Real Estate Investment Vehicle but for being established for insurance or annuity liabilities and wholly owned by an insurer?
  • Is the Entity established in relation to liabilities under an insurance or annuity contract?
  • Is the Entity wholly owned by an Entity that is subject to regulation in its location as an insurance company?

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

Share this rule

Reference, not tax advice.

Pankaj Agarwal — Tax Technology Leader