How High-Value Properties Slash Pillar Two Top-Up Tax Under SBIE Rules

The Substance-based Income Exclusion (SBIE) is a carve-out mechanism under Pillar Two (GloBE) that excludes part of a jurisdiction’s GloBE Income before calculating top-up tax, recognizing real economic substance. Its formula for 2022 rules with 2024-2026 guidance is 5% of eligible payroll plus 5% of tangible assets’ carrying value.

Payroll includes eligible employee expenses, and tangible assets cover properties and equipment. From 2023-2024, a phase-in at 5% applies, with definitive 5% targets (some guidance allows adjustments). Excess profit subject to top-up tax is GloBE Income minus SBIE. For real estate, tangible assets like high-value buildings give SBIE a significant share of GloBE Income in property holdings (often 30-70% depending on asset value and payroll).

Transfer pricing adjustments like intra-group rents or revaluations directly affect GloBE Income but not the tangible asset carrying value used for SBIE. A high-value property increases SBIE, reducing top-up tax and Pillar Two risk. However, large rent adjustments in low-rate jurisdictions can lower GloBE Income while leaving SBIE unchanged, raising residual top-up tax risk.