Pillar Two and Ultra-Wealthy Family Structures

Why Pillar Two is not just a corporate tax problem

When the OECD released the final GloBE Model Rules in December 2021, the initial reaction from many family office advisors was measured: the €750 million consolidated revenue threshold seemed safely remote from all but the largest family-controlled empires. That assessment has aged poorly. By 2024, the European Union had mandated GloBE implementation across all 27 member states under the Council Directive 2022/2523, enacted in December 2022. The United Kingdom's Multinational Top-up Tax took effect for accounting periods beginning on or after 31 December 2023. Switzerland, Japan, South Korea, and Australia had each enacted or legislated QDMTTs. The patchwork is now dense enough that any family group with genuine international scale must treat Pillar Two as an immediate operational reality, not a prospective policy concern.

The specific challenge for ultra-wealthy family structures is one of aggregation and visibility. A family patriarch may hold a majority stake in a privately owned manufacturing group with revenues of €400 million. His adult children, through a separate family trust, own interests in a real estate platform operating across five European jurisdictions, generating €150 million in annual rents. A family foundation holds minority stakes in several portfolio companies. Viewed in isolation, none of these structures clears the €750 million threshold. Viewed through the GloBE consolidation lens—which aggregates all entities under common control or common ultimate ownership—the combined group may well be in scope. The GloBE rules define an MNE Group broadly, drawing on IFRS 10 and similar consolidation standards, and the question of whether a family's disparate holdings constitute a single group for these purposes is one that most families have not yet formally answered.

The €750 million threshold is a revenue test applied to the consolidated group, not to each entity individually. Family advisors who have not mapped their clients' full corporate footprint against GloBE consolidation standards are operating with an incomplete picture.

The GloBE rules: a framework for practitioners

The Global Anti-Base Erosion rules operate through two primary charging mechanisms. The Income Inclusion Rule (IIR) allows a parent jurisdiction to impose a top-up tax on the low-taxed income of a subsidiary or constituent entity in another jurisdiction, bringing the effective tax rate (ETR) up to the 15% minimum. The Undertaxed Profits Rule (UTPR) acts as a backstop: where the IIR cannot apply—for example, because the ultimate parent entity sits in a non-implementing jurisdiction—the UTPR permits other group members in implementing jurisdictions to absorb the residual top-up charge. For family groups, the UTPR is particularly consequential because it breaks the traditional logic of locating the ultimate holding company in a favourable jurisdiction to shield subsidiaries from parent-country taxation.

Calculating the effective tax rate under GloBE

The ETR calculation under GloBE is jurisdiction-by-jurisdiction, not entity-by-entity. All constituent entities in a given jurisdiction are pooled, their adjusted covered taxes are aggregated, and the result is divided by their net GloBE income. Adjusted covered taxes begin with current tax expense per the financial statements and are then modified: deferred tax liabilities related to certain timing differences are included or excluded according to specific rules, and taxes subject to refundable tax credits are treated with particular care. For family groups that rely on structures where operating companies pay taxes at headline rates but receive refundable credits that reduce the economic burden—a common arrangement in Ireland, Malta, and certain Canadian provinces—the effective GloBE ETR may be materially lower than the statutory rate suggests. The OECD's 2023 Administrative Guidance, published in February and July of that year, provided significant additional detail on credit treatment that advisors must incorporate into ETR models.

Substance-based income exclusions and their limits

The GloBE rules include a Substance-Based Income Exclusion (SBIE) designed to protect genuine economic activity from the minimum tax. The SBIE carves out a return on payroll costs (5% in the transitional period, declining to 5% from 2028 onwards after a reduction schedule) and on the net book value of tangible assets (5% in the transitional period, similarly declining). These percentages apply to each jurisdiction's eligible payroll and tangible asset base. For a family-controlled manufacturing group with 800 employees and €200 million in plant and equipment located in a single jurisdiction, the SBIE can meaningfully reduce the jurisdictional GloBE income subject to top-up. For a family holding company that owns financial assets, IP royalty streams, or real estate managed by third-party operators, the SBIE provides minimal shelter: intangible assets and financial assets are excluded from the tangible asset calculation, and passive income structures rarely carry significant eligible payroll.

This asymmetry has direct implications for how family groups are structured. Operating businesses with genuine substance—factories, distribution networks, R&D teams—receive a meaningful income exclusion. Interposed holding companies in low-tax jurisdictions that collect dividends, interest, or royalties receive little or none. The practical consequence is that many family holding structures built around Luxembourg SAs, Dutch BVs, Cayman exempted companies, or Singapore private companies will either need to demonstrate local substance sufficient to generate meaningful SBIE credits, accept the top-up tax cost, or be restructured to locate holding functions in jurisdictions with headline rates at or above 15%.

The threshold question: which family groups are in scope

The €750 million consolidated revenue threshold was borrowed directly from the BEPS Action 13 country-by-country reporting framework, which itself drew on the G20's agreement to apply CbCR to the largest multinationals. The threshold was set at a level intended to capture approximately 90% of global corporate profits while exempting the vast majority of businesses by number. By the OECD's own estimates, roughly 8,000 to 10,000 corporate groups worldwide meet the threshold. The question for family advisors is whether their clients' aggregated holdings, when properly consolidated under GloBE rules, approach or exceed that figure.

GloBE consolidation follows the concept of the Ultimate Parent Entity (UPE), defined as the entity that prepares consolidated financial statements for the entire group and is not itself consolidated into another entity. For family groups, this definition creates complexity. A family trust that controls multiple operating groups through intermediate holding companies may or may not constitute a UPE, depending on whether it prepares consolidated accounts and the applicable accounting standard. If the trust does not consolidate, each subsidiary group may be assessed independently. If it does—or if a jurisdiction's implementation of GloBE deems it to consolidate—the aggregation effects can be dramatic. Families that have historically maintained separate accounting silos across different branches or generations of the family may find that their deliberate structural separation is not respected under GloBE's consolidation framework.

Minority interests and joint ventures

The GloBE rules include specific provisions for minority-owned constituent entities and joint ventures. Where a family group holds 30% or more of an entity that is not itself consolidated on a line-by-line basis, the GloBE rules may still treat that entity as a constituent entity subject to top-up tax calculations. This is a material point for families whose investment portfolios include significant minority stakes in private operating businesses or joint ventures with other families or institutional investors. A 35% stake in a private equity-backed industrial company with low-taxed income in a non-implementing jurisdiction could generate a GloBE liability allocated to the family group, even absent management control. The interaction between GloBE's constituent entity definitions and the family's existing shareholder agreements, particularly around information access and tax indemnification, deserves immediate attention.

Jurisdictional dynamics: where the pressure is greatest

For family groups, the jurisdictional map of Pillar Two implementation creates a tiered set of risks. Jurisdictions that have enacted QDMTTs—domestic top-up taxes that satisfy GloBE requirements—effectively ring-fence their local tax base: a family group with Irish operations, for example, will pay any top-up tax to Ireland first, preventing the IIR in the parent jurisdiction from collecting it. This is Ireland's explicit strategy under its QDMTT, enacted in Finance Act 2023, where the government chose to capture the top-up revenue domestically rather than cede it to other jurisdictions. For families with Irish subsidiaries, this means the Irish ETR will be brought to 15% in Ireland, and no further top-up should arise in the parent jurisdiction with respect to Irish income.

The more difficult jurisdictional cases involve non-implementing jurisdictions. As of mid-2024, the United States had not enacted GloBE-compatible legislation, owing to congressional gridlock. Several Gulf Cooperation Council states, including the UAE and Bahrain, had announced domestic minimum tax frameworks but with specific exemptions for free zone entities and sovereign wealth fund-adjacent structures. Caribbean and Pacific offshore jurisdictions—Cayman Islands, BVI, Bermuda—face UTPR exposure: constituent entities of in-scope groups located in these jurisdictions may find that their low-tax income is subject to top-up tax collected by EU or UK group members under the UTPR, because no QDMTT exists in the offshore jurisdiction to pre-empt it.

A Cayman holding company that routes dividends from European operating subsidiaries is not sheltered by the GloBE rules simply because Cayman has no corporate tax. The UTPR reaches back to tax that income through group members in implementing jurisdictions.

The UAE's particular complexity

The UAE introduced its federal corporate tax at 9% in June 2023 and subsequently announced a domestic minimum top-up tax applicable to large multinationals from 2025. However, the exemptions available to free zone entities under UAE corporate tax law—which can preserve a 0% rate on qualifying free zone income—create significant uncertainty about whether UAE-based constituent entities of a GloBE group will have ETRs that satisfy the 15% floor or will require top-up. For family groups that have relocated principals or holding companies to the UAE as part of post-pandemic residency restructuring, this is an urgent question. A family office principal who moved to Dubai and transferred the UPE to a UAE holding company may have inadvertently placed the family's GloBE filing obligation in a jurisdiction whose own minimum tax framework is still being technically clarified.

Implications for common family office structures

Family offices have historically relied on a relatively standard toolkit of structures: Luxembourg holding companies to access the EU Parent-Subsidiary Directive and an extensive treaty network; Dutch cooperatives or Dutch BVs for their favourable dividend and capital gains treatment; Singapore private companies for Asia-Pacific asset aggregation; Cayman or BVI vehicles for private equity and hedge fund investment. Pillar Two does not render these structures illegal or immediately unworkable, but it imposes material new costs and compliance burdens on arrangements that generate low effective tax rates.

Luxembourg holding companies

Luxembourg's participation exemption regime—which exempts qualifying dividends and capital gains from Luxembourg corporate tax—produces very low ETRs on holding company income. Under GloBE, a Luxembourg entity that receives exempt dividends from subsidiaries may have a GloBE ETR well below 15% on that income, because the covered taxes (Luxembourg corporate tax actually paid) are minimal and the GloBE income includes the dividend received before the domestic exemption is applied. Luxembourg enacted its QDMTT and IIR with effect from 1 January 2024, meaning it will collect top-up tax on low-ETR Luxembourg entities before the parent jurisdiction can. For family groups, this means their Luxembourg holding companies will begin generating top-up tax liabilities payable to the Luxembourg tax authority—a cost that was previously zero or negligible.

The practical response for many families will not be to dismantle Luxembourg structures, which carry genuine substance, treaty access, and legal certainty, but to model the incremental top-up tax cost against the retained benefits. Luxembourg's participation exemption still eliminates economic double taxation at the holding company level; the GloBE top-up is an additional cost layered on top, not a replacement for the underlying tax architecture. Where the operating subsidiaries themselves pay tax at rates above 15%—as most German, French, or Nordic subsidiaries do—the Luxembourg holding company's GloBE ETR may be sufficiently supported by the tax credits attributable to underlying entities to reduce or eliminate the top-up charge. This requires careful blended-rate modelling at the jurisdictional level.

IP holding structures and royalty boxes

Intellectual property holding structures—where a family group's brands, patents, or proprietary processes are owned by a company in a favourable IP regime such as the Irish Knowledge Development Box, the Dutch Innovation Box, or the Luxembourg IP Box—are among the most exposed to GloBE. These regimes typically reduce the effective tax rate on qualifying IP income to between 6% and 10%, well below the 15% GloBE floor. The SBIE provides no relief for IP income because intangible assets are explicitly excluded from the tangible asset SBIE calculation. Family groups that have centralised IP ownership in low-tax jurisdictions as a planning tool should expect to pay top-up taxes on that income under the IIR of the parent jurisdiction or the QDMTT of the IP jurisdiction itself.

The longer-term question is whether IP boxes remain competitive at an effective rate of 15%. They do, compared to full corporate tax rates of 25% to 30% in Germany, France, or the UK, which is why the Irish Knowledge Development Box's headline qualifying rate of 6.25% on qualifying profits, topped up to 15% under GloBE, still offers an 10-15 percentage point saving over full Irish or continental rates. The regime survives Pillar Two but with diminished—though still real—value. Family groups that funded significant IP development expenditure on the basis of sub-10% effective rates should revise their after-tax return models using the 15% floor.

Real estate holding structures

Family-controlled real estate portfolios present a distinct set of GloBE issues. Real estate held through corporate structures in jurisdictions that exempt property gains or rental income—certain Dutch, Luxembourg, or offshore structures—will face top-up tax on that income if the ETR falls below 15%. However, real estate held through transparent vehicles—partnerships, certain trust structures, or entities elected as transparent under GloBE rules—may be excluded from the GloBE computation entirely, because GloBE applies only to constituent entities that are not fiscally transparent under the laws of the jurisdiction where the owner is located. The interaction between domestic tax transparency treatment and GloBE's own transparency rules is technically dense and jurisdiction-specific, but it creates genuine planning optionality for families willing to restructure their real estate holding vehicles.

Compliance architecture: filing, reporting, and governance

The GloBE Information Return (GIR), which must be filed within 15 months of the end of the fiscal year (18 months for the first year), is a substantial compliance undertaking. The GIR requires entity-by-entity data on covered taxes, GloBE income, SBIEs, deferred tax positions, and top-up tax calculations for every jurisdiction in which the group operates. For a family group with constituent entities in 15 jurisdictions, this is not a routine compliance exercise. The data requirements alone—particularly the need for consistent financial data across entities that may use different local accounting standards—represent a material operational investment.

Governance decisions embedded in the GloBE rules have cash consequences that boards and family councils rarely appreciate. The designation of the filing entity (which need not be the UPE in every jurisdiction), the allocation of top-up tax liability among constituent entities, and the use of available elections—such as the transitional safe harbour based on CbCR data, the election to treat deferred tax liabilities as current, and the QDMTT safe harbour—are all decisions that require legal and tax input at the group level, not entity by entity. Family offices that have historically managed tax compliance in a decentralised manner, with each jurisdiction handled by a local advisor, will find that GloBE demands a coordinating function at the centre.

The GloBE Information Return is not a form that can be assembled from existing CbCR data alone. It requires a dedicated data collection and governance process that most family-controlled groups have not yet built.

Transitional safe harbours and their expiry

The OECD's transitional CbCR safe harbour, effective for fiscal years beginning on or before 31 December 2026, allows groups to use existing CbCR data to demonstrate that a jurisdiction either has a high enough ETR, low enough profit, or de minimis revenue to be excluded from full GloBE calculations. This is a significant administrative concession. For family groups that already file CbCR—mandatory for groups above the €750 million threshold under BEPS Action 13—the transitional safe harbour can substantially reduce the GloBE compliance burden in the near term. However, the safe harbour expires, and groups that rely on it without building the underlying GloBE data infrastructure will face a cliff-edge compliance challenge in 2027. The time to build that infrastructure is now, while the safe harbour provides breathing room.

Interaction with FATCA, CRS, and existing reporting obligations

Family groups subject to GloBE are, almost by definition, already subject to FATCA and the OECD's Common Reporting Standard. The CRS, implemented in over 100 jurisdictions, requires financial institutions to report account information of non-resident account holders to their home jurisdictions' tax authorities. FATCA imposes analogous obligations with respect to US persons. What Pillar Two adds to this landscape is a layer of group-level tax reporting that is distinct from the entity-level financial account reporting of CRS and FATCA. The GIR discloses group structure, intercompany arrangements, effective tax rates, and income allocation in a way that goes considerably further than CbCR and creates a new category of sensitive information held by tax authorities across multiple jurisdictions.

The information asymmetry between what tax authorities will know about a family group's structure under GloBE—and what many family principals appreciate about their own structures—is itself a governance risk. The GIR, once filed, may trigger risk-based audit selections in jurisdictions where constituent entities have historically operated below the tax authority's radar. Family advisors should conduct a thorough structural review, not merely a GloBE compliance exercise, to ensure that the group's existing arrangements withstand scrutiny under transfer pricing rules (BEPS Actions 8-10), substance requirements under ATAD and ATAD II in the EU context, and the principal purpose test embedded in most post-BEPS tax treaties.

Practical recommendations for principals and family councils

The first task for any family group that plausibly approaches the €750 million consolidated revenue threshold is a consolidation mapping exercise. This means identifying every entity in which the family—across all branches, generations, trusts, and foundations—holds an interest that might be attributed to a single UPE under GloBE's rules. The exercise should be conducted by advisors with explicit GloBE expertise, not general corporate tax practitioners, because the consolidation and constituent entity definitions differ materially from domestic group relief or CFC rules that advisors may be more familiar with.

The second task is an ETR modelling exercise across every jurisdiction in which constituent entities operate. This requires standardised financial data, a mapping of covered taxes, and the application of SBIE calculations. The output should be a jurisdiction-by-jurisdiction ETR matrix that identifies where the group has potential top-up tax exposure. In most family groups, this analysis will reveal a small number of high-exposure jurisdictions—typically offshore holding locations, IP-owning entities, and financial holding vehicles—and a larger number of jurisdictions where the ETR is comfortably above 15% and no top-up arises.

The third task is a filing governance decision. The family group must determine who will be responsible for the GIR, where it will be filed, and how the top-up tax liability—if any—will be allocated across the group. This is fundamentally a legal and governance question before it is an operational one: it requires decisions at the family council or board level about which entities bear the GloBE liability, and how that liability is funded, particularly in structures where the operating businesses and the holding entities are controlled by different family branches.

Finally, families should review their existing treaty positions and offshore structures with specific attention to UTPR exposure. Structures that route income through jurisdictions that have not enacted GloBE legislation, and whose parent jurisdictions have enacted the UTPR, are at risk of top-up tax being collected by EU or UK group members from 2024 onwards. The mechanics of how the UTPR charge is allocated within the group, and how it interacts with existing intercompany agreements and shareholder arrangements, requires legal analysis before the first fiscal year subject to GloBE closes.

Pillar Two does not eliminate the value of international tax planning for family groups. It resets the floor at 15% and requires that planning above that floor be genuinely substantiated by economic activity, legal form, and governance that withstands multi-jurisdictional scrutiny.

The longer arc: what Pillar Two signals for family wealth planning

Pillar Two is not an isolated measure. It is the most ambitious multilateral tax coordination effort since the introduction of the arm's-length standard in the 1930s, and it reflects a durable political consensus—across the G20, the EU, and the OECD Inclusive Framework's 140-plus members—that large corporate groups should pay a minimum level of tax wherever they operate. For family groups, the significance extends beyond the immediate compliance and top-up tax costs. It signals that the architecture of international tax planning built around rate differentials, treaty shopping, and offshore holding structures faces sustained institutional pressure that will not reverse in the short term.

The families that will navigate this environment most effectively are those that ground their structures in genuine substance: real decision-making in the jurisdictions where entities are registered, meaningful payroll and asset bases that generate SBIE credits, and governance documentation that can withstand examination. The transition from rate-driven planning to substance-driven planning has been underway since the BEPS project launched in 2013, but Pillar Two crystallises it. A family group that can demonstrate that its Luxembourg holding company is genuinely managed from Luxembourg, that its Irish IP company employs qualified researchers, and that its Singapore regional office makes real investment decisions will face a materially different GloBE outcome than one that maintains these entities as letterbox structures.

There is also a generational dimension that advisors would do well to raise with family principals. Many of the offshore and holding structures in use today were designed by the current generation's parents or grandparents, in a regulatory environment where CRS did not exist, BEPS was not even a concept, and a global minimum tax was theoretical. The next generation of family members—better educated on ESG, transparency, and reputational risk than their predecessors—may have different instincts about the acceptability of aggressive tax minimisation. Pillar Two provides an external impetus to modernise structures in ways that may also align with where the family's own values are heading.