Preparing for Pillar Two

The Pillar Two rules include an Income Inclusion Rule (IIR) and an Undertaxed Profits Rule (UTPR). The rules also allow jurisdictions to introduce a Qualified Domestic Top-up Tax (QDTT). The legislation in Part 4A of the Taxes Consolidation Act 1997, provides for three taxes:

1. IIR top-up tax.
2. UTPR top-up tax.
3. Domestic top-up tax.

Due to the complexity of the Pillar Two rules, it is important to understand how these rules apply to you as an in-scope entity. The steps below will help you in preparing for Pillar Two compliance. These steps are not exhaustive and do not include all matters that you must consider when understanding how the Pillar Two rules apply to you.

1. Determine if the multinational enterprise (MNE) group, large-scale domestic group, or standalone entity, is in scope of the Pillar Two rules.
2. Establish if any Pillar Two safe harbours or exemptions apply.
3. Identify financial and tax data required for completion of the top-up tax information return. Identify which entity in the MNE group, or large-scale domestic group, will file this return.

Definition

A 'safe harbour' is a provision that eases the administrative burden on in-scope groups, particularly in the initial period of the application of the Pillar Two rules.

Revenue recommends that you maintain a register of Pillar Two entities within your group. It will assist you in identifying tax registration and filing compliance obligations for the following:

• Ultimate parent entities.
• Constituent entities.
• Joint ventures.
• Designated local entities.
• Designated filing entities.

Top-up tax calculation

You should consider the steps below when you are preparing your top-up tax calculation:

1. Determine the qualifying income or loss of each entity in the group.
2. Identify the covered taxes, and adjusted covered taxes, for each entity in the group.
3. Calculate the jurisdictional effective tax rate (ETR) for Pillar Two entities.
4. Consider how the substance-based income exclusion may impact any jurisdictional qualifying income and top-up tax.
5. Identify the Pillar Two top-up taxes each entity may be liable for.
6. Identify the filing entity for each top-up tax.  

Compliance

As an in-scope entity, you must register for the relevant Pillar Two taxes. You must register within 12 months from the end of the first fiscal year for which you are subject to the tax.

If you fail to register, you may be liable to a penalty of €10,000. For further information on registering for Pillar Two taxes, please see Registering for Pillar Two.

When completing Pillar Two registration(s), MNE groups and large-scale domestic groups may consider it appropriate to form a QDTT group or a UTPR group. This will allow the group to avail of simplified tax filing and payment processes. For further information on tax filing and payment, please see Pay and File for Pillar Two.

Domestic Pillar Two tax returns and payment obligations are due within 15 months from the end of the fiscal year. This period is extended to 18 months for the first fiscal year that you are in scope. For further information, please see Pay and File for Pillar Two.

The top-up tax information return is due within 15 months from the end of the fiscal year. This period is extended to 18 months for the first fiscal year that you are in scope. For further information, please see Top-up tax information return.