Pillar Two: Book-To-Tax Differences (‘B/T Differences') For Pillar Two (‘P2') Purposes – New York Office Snippet

Loyens & Loeff New York regularly posts 'Snippets' on a range of EU tax and legal topics. This Snippet describes the impact of book-to-tax differences ('B/T Differences') for Pillar Two ('P2') purposes.

P2 seeks to enforce a global minimum income tax at an effective rate ('ETR') of 15% for each country in which the MNE operates. The starting point for the ETR calculation is book income which is subsequently adjusted to - amongst others - eliminate certain B/T Differences.

An example of such an adjustment relates to dividends and capital gains. Dividends and capital gains derived from qualifying shareholdings are treated as tax exempt under the participation exemption in many countries, whereas they are included as income in the (standalone) financial statements. This would be an issue as the dividends and capital gains would be included in the P2 calculation without a corresponding tax charge. P2 recognizes that this is an undesirable outcome and adjusts this by