OECD Pillar 2: implications for single-family offices and holding structures

The question is no longer whether a single-family office will be caught by the OECD’s Pillar 2 rules, but how quickly the existing structure must be restructured to avoid a tax liability that was never intended by the jurisdiction of establishment. As of the publication of this article, 57 jurisdictions have enacted or committed to enacting the GloBE (Global Anti-Base Erosion) rules under Pillar 2, which impose a minimum effective tax rate of 15% on multinational enterprise groups with consolidated revenue exceeding EUR 750 million. For the typical single-family office — a bespoke entity managing the assets, philanthropy, and succession planning of a single high-net-worth family — the EUR 750 million threshold was designed to be irrelevant. Yet the structural reality is more complicated. A family office that consolidates multiple operating companies, investment vehicles, and trusts under a single ultimate controlling entity can inadvertently cross the revenue threshold, triggering the Income Inclusion Rule (IIR) or the Undertaxed Profits Rule (UTPR) in the jurisdiction where the family office is resident. The 2026 implementation of the UTPR in most major jurisdictions means that families with holding structures in low-tax jurisdictions such as the British Virgin Islands, the Cayman Islands, or the United Arab Emirates must now assess whether their aggregated group revenue triggers Pillar 2 obligations that their current tax advisers have not yet modelled. ## The scope problem: when a family office becomes a multinational enterprise The GloBE rules apply to any entity that is a constituent member of a multinational enterprise group if the group has annual consolidated revenue of EUR 750 million or more in at least two of the four preceding fiscal years. The critical definitional trap for family offices lies in the concept of “ultimate parent entity” (UPE). Under the OECD Model Rules (2021), the UPE is an entity that owns a controlling interest in any other entity and is not owned by another entity with a controlling interest. For a family office structured as a single holding company that owns a portfolio of operating businesses, the family office itself is the UPE. If the aggregated revenue of all entities under that UPE — including operating companies, real estate holding vehicles, and investment funds — exceeds EUR 750 million, the entire group is subject to the GloBE rules. ### The aggregation trap The most common oversight occurs when a family owns multiple operating businesses through a single family office holding structure. A family that owns a manufacturing company with EUR 400 million in revenue, a logistics firm with EUR 250 million, and a real estate portfolio generating EUR 150 million in rental income has a combined group revenue of EUR 800 million. Under Pillar 2, these three entities are not treated as separate groups; they are a single MNE group because they are under common control of the family office UPE. The family office itself — which may have no operating revenue of its own — becomes the reporting entity for the entire group. The consequence is that the low-taxed entities within the group (for example, a holding company in a zero-tax jurisdiction) must pay top-up tax to bring their effective rate to 15%. ### The exclusion for investment entities The OECD Model Rules provide an exclusion for “investment entities,” defined as entities that meet a specific set of criteria including that they derive substantially all of their income from passive investments and are regulated as investment funds or similar vehicles. A single-family office that is exclusively a passive investment vehicle may qualify for this exclusion, but the exclusion applies only to the entity itself, not to its subsidiaries. If the family office holds operating companies directly, those operating companies are not investment entities and must be tested individually. The practical result is that a family office holding a mix of passive investments and operating businesses must bifurcate its structure: the passive investment entity may be excluded, but the operating subsidiaries remain subject to the GloBE rules based on their own revenue. ## Jurisdictional implementation: which countries matter now As of the publication of this article, the European Union has implemented Pillar 2 through Council Directive (EU) 2022/2523, effective for fiscal years beginning on or after 31 December 2023 for the IIR and 31 December 2024 for the UTPR. The United Kingdom has enacted the Multinational Top-up Tax through the Finance Act 2023, effective for accounting periods beginning on or after 31 December 2023. Switzerland has implemented the OECD minimum tax through a constitutional amendment effective 1 January 2024, applying a supplementary tax to groups with revenue exceeding EUR 750 million. The United Arab Emirates introduced a Domestic Minimum Top-up Tax (DMTT) effective for financial years starting on or after 1 January 2025, targeting the same threshold. ### The UTPR and low-tax jurisdictions The Undertaxed Profits Rule is the enforcement mechanism that most directly threatens family office structures in zero-tax jurisdictions. The UTPR allows a jurisdiction to impose a top-up tax on a constituent entity located in that jurisdiction if another constituent entity of the same group is located in a low-tax jurisdiction and is not subject to the IIR. For a family office with a holding company in the Cayman Islands (which has no corporate income tax) and an operating subsidiary in Germany, the German tax authority can apply the UTPR to collect the top-up tax on the Cayman entity’s profits. The Cayman Islands government has acknowledged this risk and, as of 2025, is considering the introduction of a DMTT to retain taxing rights. Families with Cayman holding structures should expect a DMTT to be enacted by 2026. ## Worked example: the Al-Mansour family group The following composite case study illustrates the structural dynamics. The Al-Mansour family, resident in the United Arab Emirates, owns a single-family office incorporated in Abu Dhabi Global Market. The family office holds 100% of three entities: Al-Mansour Manufacturing (a UK-resident company with annual revenue of GBP 320 million), Al-Mansour Logistics (a Singapore-resident company with annual revenue of SGD 400 million), and Al-Mansour Holdings (a Cayman Islands-resident company that holds a portfolio of passive investments generating USD 80 million in annual income). The family office itself has no operating revenue. The aggregated group revenue, converted to a common currency, exceeds EUR 750 million. The UPE is the Abu Dhabi family office. Under the UAE’s DMTT, the family office must calculate the effective tax rate for each constituent entity. Al-Mansour Manufacturing pays UK corporation tax at 25%, yielding an effective rate above 15% — no top-up tax is due. Al-Mansour Logistics pays Singapore corporate tax at 17%, also above 15%. Al-Mansour Holdings pays zero tax in the Cayman Islands. The effective rate for the Cayman entity is 0%, requiring a top-up tax of 15% on its USD 80 million income, or USD 12 million. Because the UAE has enacted a DMTT, the top-up tax is collected by the UAE tax authority, not by the Cayman Islands or by the UK under the UTPR. The family office must file a GloBE Information Return with the UAE Federal Tax Authority, disclosing the entire group structure. ### The cost of non-compliance If the Al-Mansour family office fails to file or underpays the top-up tax, the UAE can impose penalties under its general tax penalty regime. More critically, if the UAE had not enacted a DMTT, the UK could apply the UTPR to Al-Mansour Manufacturing, effectively collecting the top-up tax on the Cayman entity’s profits from the UK subsidiary. The family would then face a double compliance burden: filing in the UAE (under the IIR) and in the UK (under the UTPR). The administrative cost of managing dual filings for a group of this size is estimated by practitioners at between USD 150,000 and USD 300,000 per annum in professional fees, not including any tax liability. ## Structural responses: what families are doing now The most common structural response among family offices that have already modelled their Pillar 2 exposure is the disaggregation of the UPE. If the family office can be restructured so that no single entity holds a controlling interest in all operating businesses, the group may fall below the EUR 750 million threshold for each separate group. This requires careful legal engineering: the family must transfer ownership of each operating business to a separate trust or foundation, each with its own independent trustee or board. The OECD’s Consolidated Commentary (2023) makes clear that the GloBE rules look through artificial arrangements designed to avoid the threshold, so the restructuring must have genuine substance — separate governance, separate bank accounts, separate decision-making for each entity. ### The holding company migration A second response is the migration of the family office UPE to a jurisdiction with a DMTT that applies only to groups above the EUR 750 million threshold. Switzerland, for example, has a DMTT that applies only to groups with consolidated revenue exceeding EUR 750 million, meaning that a family office with revenue below that threshold faces no additional tax. The United Arab Emirates has adopted the same approach. For families whose group revenue is genuinely below EUR 750 million — and can be documented as such — no restructuring is necessary. The risk lies in the aggregation of revenue across entities that were designed to be separate but are, under the GloBE rules, treated as a single group. ### The investment entity election For families whose operating businesses are held separately from the family office, the family office itself may elect to be treated as an investment entity under the GloBE rules. This election, once made, is irrevocable for five years. The family office must meet the definitional requirements: it must be regulated as an investment fund or similar vehicle in its jurisdiction of establishment, it must derive at least 85% of its income from passive sources, and it must have a diversified portfolio. Most single-family offices do not meet the diversification requirement because they hold concentrated positions in a single family business. For those that do qualify, the election removes the family office from the GloBE calculation entirely, leaving only the operating subsidiaries to be tested individually. ## Five actionable planning steps 1. Conduct a group revenue aggregation analysis across all entities under common control of the family office, using the OECD’s consolidated revenue calculation methodology, and document the result with audited financial statements for the preceding four fiscal years. 2. If aggregated revenue exceeds EUR 750 million, map the effective tax rate of each constituent entity in each jurisdiction, identifying any entity with an effective rate below 15% that would trigger a top-up tax liability under the IIR or UTPR. 3. Evaluate whether the family office qualifies for the investment entity exclusion under the GloBE rules, and if it does, file the irrevocable election with the relevant tax authority before the first fiscal year in which the rules apply. 4. If disaggregation is necessary, implement a structural separation of ownership across multiple independent trusts or foundations, each with separate governance and bank accounts, and document the commercial rationale for the separation in board minutes and legal opinions. 5. Engage a tax adviser with direct experience in GloBE compliance for the specific jurisdictions where the family office and its subsidiaries are resident, and budget for the GloBE Information Return filing costs, which typically range from USD 100,000 to USD 250,000 per annum for a mid-size group. ## Sources - OECD (2021), Tax Challenges Arising from the Digitalisation of the Economy – Global Anti-Base Erosion Model Rules (Pillar Two), OECD/G20 Inclusive Framework on BEPS - OECD (2023), Consolidated Commentary to the Global Anti-Base Erosion Model Rules - Council Directive (EU) 2022/2523 of 14 December 2022 on ensuring a global minimum level of taxation for multinational enterprise groups and large-scale domestic groups in the Union - UK Finance Act 2023, Part 3 (Multinational Top-up Tax) - Swiss Federal Constitution, Article 129a (Minimum Taxation of Large Enterprises), effective 1 January 2024 - UAE Federal Decree-Law No. 60 of 2024 on the Domestic Minimum Top-up Tax - Cayman Islands Ministry of Financial Services, Public Consultation Paper on the Introduction of a Domestic Minimum Top-up Tax (2025)