What is Pillar Two?
What is the IIR top-up tax?
The Income Inclusion Rule (IIR) is the primary taxing rule. It requires an ultimate parent entity of a group to determine whether the entities in its group had an effective tax rate of 15%. This is calculated on a jurisdictional basis for each jurisdiction in which those entities are located.
If the effective tax rate is below 15%, the parent entity will pay an additional amount of tax called IIR top-up tax. The objective is to increase the overall level of taxation in respect of low-taxed jurisdictions to bring the effective tax rate to 15%.
There are special rules for intermediate parent entities and partially-owned parent entities as well as certain exclusions. For further details please see the Tax and Duty Manual Part 04A-01-02.
The IIR top-up tax came into effect for fiscal years commencing on, or after, 31 December 2023.
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