What is the IIR?
Educational overview of the Income Inclusion Rule (IIR) — how parent entities may collect top-up tax under Pillar Two, with inputs, ordering orientation, and a fictional ownership example.
Definition
The Income Inclusion Rule (IIR) is a GloBE charging mechanism under which a parent entity — often the Ultimate Parent Entity (UPE) or an Intermediate Parent Entity, depending on ownership and domestic implementation — may be required to pay top-up tax in respect of low-taxed Constituent Entities.
IIR is part of Chapter 2 of the Model Rules architecture. It is not a Safe Harbour test, not a QDMTT, and not the same as a domestic corporate income tax computation on local taxable income.
Purpose
The purpose of the IIR is to bring residual top-up tax into charge at a parent level when low-taxed income is not fully collected under a Qualified Domestic Minimum Top-up Tax in the low-tax jurisdiction. In the Model Rules design, IIR is the primary cross-border charging rule; the Undertaxed Profits Rule (UTPR) operates as a backstop.
Inputs
Operational IIR analysis typically needs: group ownership chains and Ownership Interest percentages; identification of Constituent Entities and low-tax jurisdictions; jurisdictional top-up amounts after GloBE ETR / SBIE / QDMTT steps; and domestic IIR charging provisions where enacted (including which parent is the IIR taxpayer).
Ordering and allocation (orientation)
At a high level in the Model Rules design: compute jurisdictional top-up concepts; reduce for QDMTT where applicable; then allocate remaining top-up to parent entities under IIR based on Ownership Interests and the top-down / intermediate parent rules as implemented; residual amounts may be in scope for UTPR if not brought into charge under IIR.
There is no single universal spreadsheet formula that replaces Chapter 2. Ownership percentages, excluded entities, push-down / split-ownership facts, and domestic charging rules change the picture. Confirm ordering in the Model Rules / Commentary and each relevant jurisdiction’s law.
Fictional worked example
Fictional facts (educational only): UPE in Country P owns 100% of Sub S in Country L. After GloBE computations, Country L has residual top-up of €2,000,000 that is not collected under a QDMTT. Country P has enacted an IIR. In this simplified fiction, the UPE would be the IIR taxpayer for the full €2,000,000 residual (subject to domestic IIR rules).
Variant: if an Intermediate Parent in Country M owned 80% of Sub S and was the applicable IIR parent under the rules, the fictional IIR amount attributable along that chain would be oriented to that 80% Ownership Interest — with the remainder analyzed under further IIR / UTPR rules. Do not treat this sketch as a filing computation.
Review notes
Reviewers should separate QDMTT, IIR, and UTPR workstreams; verify ownership extracts against legal entity charts; confirm which domestic law creates the IIR charge; and avoid using marketing effective dates. This page does not list country-by-country IIR first-application dates.
Product link
Organize charging-rule status and review notes in Mirentra (/platform). Book a walkthrough via /demo. Software outputs remain decision-support, not legal conclusions.
Primary sources and source-review date
Primary official sources: GloBE Model Rules PDF (Chapter 2 IIR); Consolidated Commentary (2026, DOI 10.1787/4377e89f-en); Administrative Guidance (December 2023 PDF). Source-review date: 2026-09-07.