Website Last updated:

May 15, 2026

Article 7 provides specific rules for groups with flow-through entities, deductible dividend regimes, and investment entities. It outlines how a UPE that is a flow-through entity can reduce its Pillar Two Income based on the tax status of its owners. The article introduces the Investment Entity Tax Transparency Election and the Taxable Distribution Method, allowing groups to manage the tax treatment of investment vehicles. It also details the Equity Investment Inclusion Election and the treatment of Qualified Flow-through Tax Benefits, ensuring that tax neutrality and distribution-based tax systems are properly integrated into the GloBE framework.

Article 7 - Tax Neutrality and Distribution Regimes

Article 7.1. Ultimate Parent Entity that is a Flow-through Entity

7.1.1 The Pillar Two Income for a Fiscal Year of a Flow-through Entity that is the Ultimate Parent Entity of an MNE Group shall be reduced by the amount of Pillar Two Income attributable to each Ownership Interest in that Ultimate Parent Entity if:

(a) the holder of the Ownership Interest is subject to tax on such income for a taxable period that ends within 12 months of the end of the Ultimate Parent Entity’s Fiscal Year and:

(i) the holder of the Ownership Interest is subject to tax on the full amount of such income at a nominal rate that equals or exceeds the Minimum Rate; or

(ii) it can be reasonably expected that the aggregate amount of Covered Taxes paid by the Ultimate Parent Entity and other Entities that are part of the Tax Transparent Structure and Taxes of the holder of the Ownership Interest on such income equals or exceeds the amount that results from multiplying the full amount of such income by the Minimum Rate; or

(b) the direct holder is a natural person that:

(i) is a tax resident in the UAE; and

(ii) holds Ownership Interests that, in the aggregate, are a right to 5% or less of the profits and assets of the Ultimate Parent Entity; or

(c) the holder is a Governmental Entity, an International Organisation, a Non-profit Organisation, or a Pension Fund that

(i) is resident in the UAE; and

(ii) holds Ownership Interests that, in the aggregate, are a right to 5% or less of the profits and assets of the Ultimate Parent Entity.

7.1.2 In computing its Pillar Two Loss for a Fiscal Year, a Flow-through Entity that is the Ultimate Parent Entity of an MNE Group shall reduce its Pillar Two Loss for such Fiscal Year by the amount of Pillar Two Loss attributable to each Ownership Interest, except to the extent that the holders of Ownership Interests are not allowed to use the loss in computing their separate taxable income.

7.1.3 A Flow-through Entity that reduces its Pillar Two Income pursuant to Article 7.1.1 shall reduce its Covered Taxes proportionally.

7.1.4Articles 7.1.1 through 7.1.3 shall apply to a Permanent Establishment: