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Ultimate Parent Entity

Applies
FY2024 onwards
Reviewed
Rule
P2-UPE-2024.1
By

What is the Ultimate Parent Entity under Pillar Two?

The entity holding a controlling interest in another entity and not itself controlled by one, or a single entity with permanent establishments abroad.

Per GloBE Model Rules (Pillar Two), December 2021, Article 1.4, Ultimate Parent Entity

An Ultimate Parent Entity is an Entity that owns, directly or indirectly, a Controlling Interest in any other Entity and is not itself owned, with a Controlling Interest, directly or indirectly, by another Entity; or the Main Entity of a Group that is a single Entity with Permanent Establishments in other jurisdictions and is not part of another Group. A Controlling Interest is an Ownership Interest that requires the holder to consolidate the Entity line by line under an Acceptable Financial Accounting Standard, or would if it prepared consolidated financial statements.

The Ultimate Parent Entity's consolidated financial statements define the Group, and its location decides which jurisdiction's regime the group's safe harbours and its reporting turn on.

What catches people

Control is about consolidation, not a percentage

A Controlling Interest is defined by the requirement to consolidate line by line. There is no ownership share in the definition: a holder of 50% with control can have one, and a holder of 60% without it may not.

Both limbs of the first test

  • It holds a Controlling Interest in another Entity
  • No other Entity holds a Controlling Interest in it, directly or indirectly

A single Entity with branches

A Main Entity with Permanent Establishments in other jurisdictions that is not part of another Group is a Group in itself and its own Ultimate Parent Entity. This is tried only if the first test fails. A Main Entity is deemed to hold the Controlling Interests of its Permanent Establishments.

A sovereign wealth fund is not the UPE

A sovereign wealth fund that meets the definition of a Governmental Entity is not treated as an Ultimate Parent Entity and is not part of any MNE Group, even where its accounting standard would have it consolidate what it controls. Each business it owns is tested as a Group of its own, as it would be if the government held it directly — so portfolio groups that are separately below the revenue threshold are not swept into scope by being added together.

A parent that prepares no consolidated accounts

Control is tested by whether the holder would be required to consolidate line by line if it prepared consolidated statements. A family holding company that publishes none is still the Ultimate Parent Entity of what it controls, under the deemed consolidation test. An investment entity that carries its holdings at fair value instead of consolidating them does not hold Controlling Interests in them, so each portfolio company is the top of its own Group.

A UPE is not necessarily a Parent Entity

A Parent Entity is an Ultimate Parent Entity that is not an Excluded Entity, among others. An Investment Fund that is the UPE is excluded by type.

Order of testing

  1. 1

    Ownership of a Controlling Interest

    Both limbs of Article 1.4(a).

  2. 2

    A Main Entity with Permanent Establishments

    Article 1.4(b), tried if (a) fails.

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.

The top of a chain

The Entity consolidates two subsidiaries and is not itself consolidated by anyone.

Computed

The Entity is an Ultimate Parent Entity as computed: Article 1.4(a) is met, because it holds a Controlling Interest in another Entity and no other Entity holds one in it. A Controlling Interest turns on consolidation, not on a percentage of ownership. Being an Ultimate Parent Entity is not the same as being a Parent Entity: a Parent Entity is one that is not an Excluded Entity. Based on what you supplied.

Decided by the ownership of a controlling interest

An intermediate holding company

The Entity consolidates a subsidiary but is itself consolidated by a higher Entity, and is not a Group of its own.

Computed

The Entity is not an Ultimate Parent Entity as computed: it is itself held with a Controlling Interest by another Entity, and it is not a Main Entity of a Group of its own under Article 1.2.3. Where it holds Controlling Interests but is itself controlled, it is below the Ultimate Parent Entity in the chain. Based on what you supplied.

Decided by the ownership of a controlling interest

A single entity with a branch abroad

The Entity has no subsidiaries but operates through a Permanent Establishment in another jurisdiction and is not part of another Group.

Computed

The Entity is an Ultimate Parent Entity as computed: Article 1.4(b) is met, because it is the Main Entity of a Group that is a single Entity with Permanent Establishments in other jurisdictions and is not part of another Group. Being an Ultimate Parent Entity is not the same as being a Parent Entity: a Parent Entity is one that is not an Excluded Entity. Based on what you supplied.

Decided by the a main entity with permanent establishments

A portfolio company owned by a sovereign wealth fund

An operating group whose parent company is wholly owned by a sovereign wealth fund that qualifies as a Governmental Entity. The fund is not treated as a UPE, so the parent company is the Ultimate Parent Entity and the revenue test is made on its own consolidated statements.

Computed

The Entity is an Ultimate Parent Entity as computed: Article 1.4(a) is met, because it holds a Controlling Interest in another Entity and no other Entity holds one in it. A Controlling Interest turns on consolidation, not on a percentage of ownership. Being an Ultimate Parent Entity is not the same as being a Parent Entity: a Parent Entity is one that is not an Excluded Entity. Based on what you supplied.

Decided by the ownership of a controlling interest

A private equity portfolio company

A group held by a private equity fund that measures its investments at fair value and does not consolidate them line by line. The fund holds no Controlling Interest as defined, so the portfolio group's top company is the Ultimate Parent Entity.

Computed

The Entity is an Ultimate Parent Entity as computed: Article 1.4(a) is met, because it holds a Controlling Interest in another Entity and no other Entity holds one in it. A Controlling Interest turns on consolidation, not on a percentage of ownership. Being an Ultimate Parent Entity is not the same as being a Parent Entity: a Parent Entity is one that is not an Excluded Entity. Based on what you supplied.

Decided by the ownership of a controlling interest

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:

  • Does the Entity own, directly or indirectly, a Controlling Interest in any other Entity — an interest that requires it to consolidate that Entity line by line under an Acceptable Financial Accounting Standard, or would if it prepared consolidated financial statements? A Main Entity is deemed to hold the Controlling Interests of its Permanent Establishments.

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