Which entities are exempt from Pillar 2 regulations (on global minimum tax*)?

This article will answer the following questions:

• Which entities will not be covered by top-up tax?
• Which exemptions have been specified in the draft Act on global minimum level of taxation?

In our previous article on global minimum tax (Pillar 2) we have listed entities affected by the new regulations and named the conditions that must be met for an entity to be subject to the new levy under Pillar 2. Here we will discuss exemptions specified in the draft Act and indicate the entities that will be exempt from the new tax obligation.

What is the definition of global minimum level of taxation?

*By this we understand:

• global top-up tax (Income Inclusion Rule),
• domestic top-up tax (Qualified Domestic Minimum Top-Up Tax),
• top-up tax on undertaxed profit (Undertaxed Profit Rule).

Which entities will be exempt from top-up tax?

Under draft Act on top-up taxation of constituent entities of multinational and domestic groups, the new global minimum level of taxation will not apply to the following entities:

• taxpayers not being constituent entities of MNEs or domestic groups,
• taxpayers being constituent entities of MNEs or domestic groups with consolidated revenue that fails to exceed the threshold of EUR 750 million within the period of four years preceding a given fiscal year,
• taxpayers being constituent entities of MNEs and domestic groups with consolidated revenue exceeding the threshold of EUR 750 million only once within the period of the four years in question.

Exempt entities specified in the draft Act on global minimum level of taxation 

Additionally, the draft Act on top-up tax lists the entities that will not be subject to Pillar 2 regulations, e.g. due to the special objective of their operation or their status. These exemptions cover all three types of the new tax, i.e. global top-up tax, domestic top-up tax as well as top-up tax on undertaxed profit. The list of exempt entities includes, but is not limited to, the following:

• governmental entities,
• international organisations,
• non-profit organisations,
• pension fund companies,
• invenstment fund companies being ultimate parent companies,
• real-estate investment companies being ultimate parent entities,
• entities where at least 95% of the nominal value of their shares is held, directly or through one or more entities, by exempt entities, except for entities providing retirement pension services and those which conduct business activity consisting exclusively or almost exclusively in holding assets or running auxillary activity for the benefit of exempt entities only,
• entities where at least 85% of the nominal value of their shares is held, directly or through one or more entities, by exempt entities, except for entities providing retirement pension services, provided their almost entire revenue comes from exempt dividends.

Please bear in mind that the revenue of the exempt entities will be accounted for when computing the threshold of the group’s annual consolidated revenue (EUR 750 million), although their financial figures will not be taken into consideration for the computation of the global minimum level of taxation.

The abovementioned exempt entities have been proposed in the draft Act. However, these are not the only exemptions from taxation stated in the new regulations. The draft Act stipulates some additional exemptions and simplifications known as safe harbours. In special cases, provided the conditions specified in the regulations are met by a given group (e.g. it has to operate in less than 6 different jurisdictions, it has to exist for no more than 5 years, etc.), these will allow for no taxation at all or make the entities eligible for claiming 0% tax rate. To learn more about safe harbours and their types, please read our following articles.

Should you have any questions – or need to discuss the topic in detail – we strongly encourage you to contact our experts.