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Ultimate Parent Entity subject to a Deductible Dividend Regime

Applies
FY2024 onwards
Reviewed
Rule
P2-UPEDD-2024.1
By

How is a UPE under a deductible dividend regime treated?

Its GloBE Income falls by dividends paid within 12 months to holders taxed at 15% or more, or to local holders of 5% or less.

Per GloBE Model Rules (Pillar Two), December 2021, Article 7.2, Ultimate Parent Entity subject to Deductible Dividend Regime

An Ultimate Parent Entity subject to a Deductible Dividend Regime reduces its GloBE Income, but not below zero, by the amount distributed as a Deductible Dividend within 12 months of the end of the Fiscal Year if the recipient is taxed on the dividend within 12 months of the Fiscal Year's end — at a nominal rate equal to or above the Minimum Rate, or with combined taxes reasonably expected to reach the Minimum Rate — or is a natural person receiving a patronage dividend from a supply Cooperative, or a natural person resident in the UPE Jurisdiction holding no more than the published share of the profits and assets, or a resident Governmental Entity, International Organisation, Non-profit Organisation or Pension Fund that is not a Pension Services Entity.

The reduction is the lower of the qualifying dividend and the GloBE Income, and the UPE's Covered Taxes are reduced proportionally.

What the result turns on

Paid within 12 months

Only an amount distributed as a Deductible Dividend within 12 months of the end of the Fiscal Year counts.

Five routes for the recipient

  • (a)(i) Taxed on the dividend at a nominal rate at or above the Minimum Rate
  • (a)(ii) Combined taxes reasonably expected to reach the Minimum Rate
  • (a)(iii) A natural person receiving a patronage dividend from a supply Cooperative
  • (b) A natural person resident in the UPE Jurisdiction holding the published share or less, in aggregate
  • (c) A resident Governmental Entity, International Organisation, Non-profit Organisation or Pension Fund that is not a Pension Services Entity — with no share limit

Capped by the income

The reduction cannot exceed the UPE's GloBE Income and is never negative.

The tax on distributed income comes out too

GloBE Income is profit with Covered Taxes added back, and a dividend is paid out of profit after tax. So the Covered Taxes on the distributed income are taken out of the taxes, and the income is reduced by the same amount again. The Commentary's example: accounting profit of 90 after 10 of tax, all 90 distributed. GloBE Income is 100; the dividend reduces it by 90 and the tax reduction by a further 10, to nil. Tax paid under the regime on income that is not distributed stays in Covered Taxes, with that income.

Points the Commentary settles

  • The regime is typically that of an investment company or a Cooperative; an Investment Entity at the top of a group is an Excluded Entity and never reaches this article
  • A Cooperative that is exempt from tax, without any deduction for what it pays out, is still within it
  • Losses do not flow through to the owners under such a regime, so there is no loss rule: a loss simply enters the jurisdiction's Net GloBE Income
  • A patronage dividend from a supply Cooperative to an individual consumer counts as taxed whether or not the individual pays tax on it; to a business, it counts as taxed to the extent it reduces a cost the business deducts
  • A resident Governmental Entity, International Organisation, Non-profit Organisation or Pension Fund qualifies whatever its share — but a Pension Services Entity does not
  • The parent must keep records showing which year's income was distributed within the 12 months

Beyond the UPE

The rule extends to other Constituent Entities in the UPE Jurisdiction subject to the regime, to the extent their income is further distributed by the UPE to qualifying recipients.

Order of testing

  1. 1

    The recipient of the dividend

    Which of the routes the recipient meets, if any, after the 12-month test.

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 dividend to a taxed recipient

EUR 400 distributed to a recipient taxed at a nominal 20%, against GloBE Income of EUR 1,000.

Computed

The GloBE Income of the UPE is reduced by EUR 400 as computed: Article 7.2.1(a)(i) — the recipient is taxed on the dividend at a nominal rate of 20%, equal to or above the Minimum Rate of 15%. The reduction is the lower of the dividend of EUR 400 and the GloBE Income of EUR 1,000, and not below nil. Article 7.2.2 also reduces the UPE's Covered Taxes proportionally, and Article 7.2.3 extends the rule to other Constituent Entities in the UPE Jurisdiction that are subject to the regime. Based on what you supplied.

Workings

Deductible DividendArticle 7.2.1 — as supplied
EUR 400
GloBE Income of the UPE before the reductionArticle 7.2.1 — as supplied
EUR 1,000
Recipient's nominal rate on the dividendArticle 7.2.1(a)(i) — as supplied
20%
Minimum RateArticle 7.2.1(a)(i) — published value. The rate is at least it
15%
GloBE Income reduced byArticle 7.2.1 — the lower of the dividend and the GloBE Income, and not below nil
EUR 400

Decided by the recipient of the dividend

More than the income

A dividend of EUR 1,500 against GloBE Income of EUR 1,000: the reduction stops at the income.

Computed

The GloBE Income of the UPE is reduced by EUR 1,000 as computed: Article 7.2.1(a)(i) — the recipient is taxed on the dividend at a nominal rate of 20%, equal to or above the Minimum Rate of 15%. The reduction is the lower of the dividend of EUR 1,500 and the GloBE Income of EUR 1,000, and not below nil. Article 7.2.2 also reduces the UPE's Covered Taxes proportionally, and Article 7.2.3 extends the rule to other Constituent Entities in the UPE Jurisdiction that are subject to the regime. Based on what you supplied.

Workings

Deductible DividendArticle 7.2.1 — as supplied
EUR 1,500
GloBE Income of the UPE before the reductionArticle 7.2.1 — as supplied
EUR 1,000
Recipient's nominal rate on the dividendArticle 7.2.1(a)(i) — as supplied
20%
Minimum RateArticle 7.2.1(a)(i) — published value. The rate is at least it
15%
GloBE Income reduced byArticle 7.2.1 — the lower of the dividend and the GloBE Income, and not below nil
EUR 1,000

Decided by the recipient of the dividend

Paid too late

A dividend paid more than 12 months after the end of the Fiscal Year.

Computed

The GloBE Income is not reduced as computed: Article 7.2.1 reduces GloBE Income only by an amount distributed as a Deductible Dividend within 12 months of the end of the Fiscal Year. Based on what you supplied.

Decided by the recipient of the dividend

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:

  • What is the recipient of the dividend — a recipient taxed on it, a natural person receiving a patronage dividend from a supply Cooperative, a natural person resident in the UPE Jurisdiction, a Governmental Entity, International Organisation, Non-profit Organisation or Pension Fund, or another recipient?

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.

Thresholds

pillar_two.minimum_rate
15% · reviewed 2026-10-04 · source
pillar_two.flow_through_small_holder_share
5% · reviewed 2026-10-04 · source

Threshold values are published separately from the rule and carried with a citation. Where none has been published for the period being computed, the rule reports that rather than applying a default.

Sources

Share this rule

Reference, not tax advice.

Pankaj Agarwal — Tax Technology Leader