Income Inclusion Rule (IIR) — Primary Top-up Tax Mechanism

The Income Inclusion Rule (IIR) is the primary instrument of the Pillar 2 framework for collecting the global minimum tax. It requires the ultimate parent entity (UPE) of an MNE group with consolidated annual revenue of at least EUR 750 million to pay a top-up tax on low-taxed income of its foreign subsidiaries and permanent establishments where the effective tax rate in those jurisdictions falls below 15%.

The IIR is modelled on the US GILTI (Global Intangible Low-Taxed Income) provision but differs through its jurisdictional blending approach (blending at jurisdictional level, not globally) and stronger alignment with genuine economic substance (SBIE). It is levied at the UPE level or at an intermediate parent entity level.

Within the GloBE framework, a fixed rule ordering applies: first, a Qualified Domestic Minimum Top-up Tax (QDMTT) of the low-taxed jurisdiction, then the IIR at the parent entity level, and only subsidiarily the Undertaxed Profits Rule (UTPR).

The IIR was introduced as the primary mechanism of the GloBE Rules in the Pillar 2 concept paper of 2019. It is conceptually modelled on the US GILTI system, which has been in force since 2018. The technical rules of the IIR were developed in the GloBE Blueprint (October 2020) and the final GloBE Model Rules (December 2021). The EU implemented the IIR in the Minimum Tax Directive 2022/2523, with the transposition deadline for member states set at 31 December 2023 and the IIR applicable for fiscal years beginning on or after 31 December 2023. In addition to the EU, the UK, Japan, South Korea, Australia, Canada, New Zealand, and Switzerland also implemented the IIR for fiscal years from 2024.

The IIR applies to all MNE groups meeting the Pillar 2 threshold (EUR 750 million consolidated annual revenue). It is levied at the level of the ultimate parent entity (UPE) or, in multi-tier structures, at intermediate parent entity (IPE) level. The IIR uses a jurisdictional blending approach: the ETR is calculated per jurisdiction, not globally. The SBIE reduces taxable GloBE income by substance-based exclusions for payroll costs (permanently 5%; transition 2024–2032: starting at 10%) and tangible asset book values (permanently 5%; transition 2024–2032: starting at 8%).

• Calculate GloBE income and effective tax rate (ETR) per jurisdiction
• Collect top-up tax on low-taxed income (ETR below 15%) by the UPE
• Apply the substance-based income exclusion (SBIE) to reduce the top-up tax amount
• Apply the push-down rule for multi-tier corporate structures
• Credit qualified IIR taxes levied by other jurisdictions
• Apply transitional safe harbours during the roll-out phase
• File the GloBE Information Return (GIR) in the IIR jurisdiction

3 corrections:
- EU Directive 2022/2523: adoption date is December 15, 2022, not December 14
- GloBE Blueprint date wrong: October 12, 2020, not October 14
- Official URL no longer accessible (OECD website restructuring)
4 updates:
- Missing key_date: Administrative Guidance packages 2023-2024
- SBIE transitional rates imprecise: period and starting values missing
- Missing mention of additional IIR-implementing countries
- Missing key_date: Political agreement of October 8, 2021
4 clarifications.
2 notes.