Spotlight on Pillar 2 – Collection, scoping, vehicles and entities

Treatment of partnerships and similar vehicles

If a fund vehicle or any entity in a fund structure is in-scope of the rules and is not an Excluded Entity, it may come within special provisions for Flow-through Entities and Tax Transparent Entities.

An entity is a Flow-Through Entity to the extent it is fiscally transparent with respect to its income, expenditure, profit or loss in the jurisdiction where it was created unless it is tax resident and subject to tax on its income or profit in another jurisdiction.

For this purpose, an entity is treated as fiscally transparent under the laws of a jurisdiction, if that jurisdiction treats the income of that entity as if it were earned directly by the investors rather than the entity itself such that the entity is not subject to tax in that jurisdiction on its income.

Thus, in Ireland a partnership or a CCF will generally be treated as a Flow-Through Entity.

The Pillar Two Rules will treat a Flow-Through Entity that is a member of an MNE group (but not the ultimate parent entity of the group) as a Tax Transparent Entity to the extent that it is also treated as fiscally transparent in the jurisdiction in which its owners / investor are located provided that that it does not have a place of business in the jurisdiction where it was created and its income is not attributable to a permanent establishment.

Where this treatment applies, the income of the Tax Transparent Entity is allocated to its investors / owners in accordance with their ownership interests.

Consequently, no QDTT should arise for the fund entity on its own account in the jurisdiction where it is established; instead, the income of the fund entity should be allocated to the jurisdiction of the investor for Pillar two purposes (and so should be included in the investors’ QDTT calculations, if applicable).

Practically, this means that an Irish fund vehicle such as an ILP or CCF should not be subject to any taxes in Ireland further to Pillar Two provided each investor recognises the ILP / CCF as transparent for tax purposes in their jurisdiction of residence.