Revenue has published updated Pillar Two guidance covering prior year adjustments, deferred tax expense and the calculation of the effective tax rate.
Irish Revenue has published eBrief No. 125/26 on 28 August 2026, updating Tax and Duty Manual Part 04A-01-02, which provides guidance on the operation of the Pillar Two rules on the Global Minimum Level of Taxation for Multinational Enterprise Groups and Large-Scale Domestic Groups in the Union.
The latest changes concern prior period adjustments, the calculation of the effective tax rate (ETR) and references to OECD Administrative Guidance.
Sections 8.9 and 9.8 have been updated to address prior year adjustments relating to a pre-transition fiscal year where those adjustments affect deferred tax expense. Section 9.1 has also been amended to refer to OECD Administrative Guidance relevant to the computation of the Pillar Two ETR.
Revenue has additionally updated various cross-references to OECD Administrative Guidance, including those in section 1.1 and Appendix 1.
Legislative framework
Ireland introduced the Pillar Two global minimum tax framework through Section 94 of Finance (No.2) Act 2023, which inserted Part 4A of the Taxes Consolidation Act (TCA) 1997. The legislation transposed the EU Minimum Tax Directive (Council Directive (EU) 2022/2523) into Irish law.
The rules apply to multinational enterprise (MNE) groups and large-scale domestic groups with annual consolidated revenues of at least EUR 750 million, with a minimum effective tax rate (ETR) of 15%.
Irish legislation is to be interpreted in accordance with the OECD Pillar Two Model Rules, Commentary, and Consolidated Commentary, including Administrative Guidance approved up to May 2026.
Main Pillar Two mechanisms
Part 4A of the TCA 1997 provides three mechanisms for collecting top-up tax:
- Income Inclusion Rule (IIR): Sections 111E to 111H impose top-up tax on relevant Irish parent entities, including an Ultimate Parent Entity, Intermediate Parent Entity or Partially-Owned Parent Entity, in respect of their allocable share of top-up tax arising from low-taxed constituent entities.
- Undertaxed Profit Rule (UTPR): Sections 111L to 111N provide a backstop mechanism under which remaining top-up tax can be allocated across jurisdictions applying a qualified UTPR. The allocation is based on relative employee numbers and the net book value of tangible assets.
- Qualifying Domestic Top-up Tax (QDMTT): Sections 111AAA to 111AAE allow Ireland to impose domestic top-up tax on qualifying entities located in the State, giving Ireland the first right to tax Irish-located low-taxed entities up to the 15% minimum rate.
ETR and top-up tax calculations
The ETR is calculated separately for each tested jurisdiction by dividing aggregate adjusted covered taxes by net qualifying income:
ETR = Aggregate Adjusted Covered Taxes ÷ Net Qualifying Income
The qualifying income calculation begins with the Financial Accounting Net Income or Loss (FANIL) of each constituent entity, before consolidation adjustments eliminating intra-group transactions. FANIL is generally prepared under the accounting standard used for the ultimate parent entity’s consolidated financial statements, subject to specified adjustments, including those relating to certain dividends, equity gains and losses, and asymmetric foreign currency movements.
Adjusted covered taxes are based on current tax expense accrued in FANIL, subject to additions and reductions. These include adjustments for tax expenses recorded in profit before taxation, used qualifying loss deferred tax assets, uncertain tax positions, tax refunds and certain refundable tax credits.
Deferred tax adjustments also apply. Where the tax rate used to calculate deferred taxes exceeds 15%, the deferred tax expense must be recalculated at 15%.
Other technical provisions
The Irish rules contain several technical provisions relevant to the GloBE calculations.
Marketable Transferable Tax Credits (MTTC): Under Section 111V, a transferable tax credit is treated as marketable where it meets the applicable legal transferability and marketability requirements. The purchaser must acquire the credit at or above the marketable price floor, which is 80% of its net present value. MTTCs are treated as income for the qualifying income calculation, while non-marketable transferable tax credits reduce adjusted covered taxes.
Deferred tax recapture: Section 111X provides three methods for tracking deferred tax liabilities: an item-by-item basis, a general ledger account basis or an aggregate category basis. A Last-In, First-Out (LIFO) ordering rule applies when loss deferred tax assets are utilised.
Substance-Based Income Exclusion (SBIE): The SBIE reduces the amount of net qualifying income subject to top-up tax based on eligible payroll costs and the net book value of eligible tangible assets located in the jurisdiction.
Safe harbours
Irish legislation provides several safe harbours to simplify compliance:
- Transitional CbCR Safe Harbour (Section 111AJ): Jurisdictional top-up tax is deemed to be zero during the transition period for fiscal years beginning on or before 31 December 2026 and ending before 30 June 2028, provided one of three tests is met: the De Minimis Test, Simplified ETR Test or Routine Profits Test.
- Transitional UTPR Safe Harbour (Section 111AK): UTPR top-up tax for constituent entities in a parent jurisdiction is deemed to be zero where that jurisdiction applies a corporate income tax rate of at least 20%.
- Simplified Calculations Safe Harbour (Section 111AKA): Top-up tax is deemed to be zero for Non-Material Constituent Entities (NMCEs) where the required simplified income, revenue and tax calculations are elected and satisfied.
- Qualified Domestic Top-up Tax (QDTT) Safe Harbour (Section 111AI): Top-up tax is deemed to be zero where the jurisdiction operates a qualified domestic top-up tax that has successfully passed the OECD peer review process.
For the Transitional CbCR Safe Harbour, the Simplified ETR Test uses a transition rate of 15% for years beginning in 2023/2024, 16% for 2025 and 17% for 2026. Under the De Minimis Test, revenue must be below EUR 10 million and profit before tax below EUR 1 million. The Routine Profits Test applies where profit before tax is equal to or below the SBIE amount.
Filing and compliance
Under Section 111AAI, a constituent entity located in Ireland must prepare and file a GloBE Information Return (GIR) with the Revenue Commissioners by the specified return date.
Separate domestic returns apply to liabilities arising under the IIR (Section 111AAJ), UTPR (Section 111AAK) and QDTT (Section 111AAN).
Section 111AAAB provides penalties for non-compliance, including failures to submit the top-up tax information return, notification of the filing entity or domestic returns, as well as failures to register.
Irish self-assessment, enquiry and assessment procedures, including applicable assessment time limits and Revenue audit powers, also apply to GloBE tax, subject to the necessary modifications.
Earlier, Irish Revenue released two new eBriefs providing operational guidance for entities subject to the OECD’s Pillar Two global minimum tax framework, including instructions for filing information returns and meeting tax return and payment obligations.
