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Pillar Two Merger A Year Case Study

Pillar Two Case Study: Can an MNE Group Fall Within the UAE DMTT Scope in the Year of Its Merger?

A Conflict Between the Legislation and the OECD Commentary

The UAE Federal Tax Authority (FTA), in its August 2026 Scope and Registration Guide No. TTGREG1, provides an example of two Groups merging on 1 January 2025. The FTA concludes that the resulting MNE Group falls within the UAE Domestic Minimum Top-up Tax (DMTT) scope for 2025 because the combined historical revenues of the predecessor Groups exceeded EUR 750 million in two of the four preceding Fiscal Years.

This conclusion follows para 23 of the OECD Consolidated Commentary (2026), which reaches the same result for Groups merging “in Year 5”, without specifying the precise date on which the merger takes effect.

However, Article 6.1.1(a) of Cabinet Decision No. 142 of 2024 expressly provides that its special merger rule applies “if two or more Groups merge to form a single Group in any of the four Fiscal Years prior to the tested Fiscal Year…”, i.e. it applies to mergers occurring in one of the four Fiscal Years preceding the tested Fiscal Year.

Neither the OECD Commentary nor the FTA Guide explains how a merger occurring in the tested Fiscal Year satisfies that condition.

The distinction is important. Under a literal interpretation of the legislation, a newly merged MNE Group may remain outside the UAE DMTT scope in the merger year, whereas the OECD and FTA interpretation could bring it within scope immediately.

The following case study examines this inconsistency and its possible implications.

Facts

Group A is a UAE-headquartered MNE Group. Group B is another MNE Group headquartered outside the UAE. Both Groups prepare consolidated financial statements under IFRS and have calendar financial years.

Neither Group individually exceeded EUR 750 million of annual consolidated revenue in any of the four Fiscal Years from 2021 to 2024.

On 1 January 2025, Group A and Group B merged to form a single MNE Group headed by the UAE parent of Group A. The merger took effect on that date, the first day of the Group’s 2025 Fiscal Year. All entities of both predecessor Groups were brought under common control. No stand-alone Entity participated in the transaction.

The historical revenues of the two Groups were as follows:

Fiscal YearGroup A (EUR mln)Group B (EUR mln)Combined (EUR mln)
2021300520820
2022200400600
2023300300600
2024500300800

These figures are taken from Example 16 of TTGREG1.

The transaction satisfies the definition of a Merger under Article 6.1.2(a), since all Group Entities of two previously separate Groups were brought under common control. Neither Group had been within the UAE DMTT scope before the merger on the basis of its own historical revenues.

Questions

  1. Does Article 6.1.1(a) require aggregation of the predecessor Groups’ historical revenues when the merger occurs in the tested Fiscal Year itself?
  2. If the answer is no, can para 23 of the OECD Commentary and Example 16 of the FTA Guide nevertheless justify applying the special merger rule in that year?
  3. Can the resulting Group therefore be regarded as outside the UAE DMTT scope for 2025, notwithstanding the contrary conclusion reached in the OECD and FTA examples?

Executive Summary

After the analysis below, we opine as follows:

  1. In our view, there is a genuine inconsistency between Article 6.1.1(a) of Cabinet Decision No. 142 of 2024 and its application illustrated in the OECD Commentary.
  2. The literal interpretation supports the conclusion that Article 6.1.1(a) does not apply to a merger occurring in the tested Fiscal Year. The provision expressly requires the merger to have occurred in one of the four preceding Fiscal Years. The case study merger took effect on 1 January 2025, the first day of the tested Fiscal Year, rather than in any of the four preceding Fiscal Years.
  3. On this interpretation, neither Article 6.1.1(a) nor the ordinary revenue threshold test under Article 1.1.1 brings the resulting Group within scope for 2025. Article 6.1.1(b) is also inapplicable because the transaction involved two pre-existing Groups rather than a stand-alone Entity.
  4. However, para 23 of the OECD Commentary expressly treats a merger occurring in Year 5 as bringing the resulting Group within scope in Year 5 by aggregating the Groups’ revenues for Years 1–4. Example 16 of the FTA Guide reproduces the same result.
  5. The inconsistency is not addressed in either publication. Neither explains why the temporal condition in Article 6.1.1(a) can be disregarded or interpreted as extending to mergers occurring in the tested Fiscal Year. Paragraphs 28 and 32 of the Commentary imply that the four-year reference fixes the years to be measured rather than the date of the merger, but that reading is assumed rather than defended, and is not reconciled with the separate limitation of the deeming to Fiscal Years prior to the merger. This concern is reinforced by the Commentary’s own description of its interpretative role and by the OECD’s acknowledgment that national law can constrain the effect of guidance. These statements do not resolve the issue under UAE law, but neither do they establish any general authority for the OECD Commentary to override an express legislative condition.
  6. In our view, the omission of any reasoning is itself significant. An adjudicator departing from apparently clear statutory wording would ordinarily be expected to explain why the departure is legally justified. The OECD Commentary is not a judicial ruling, so this is an analogy about the quality of legal reasoning, not a claim that the Commentary is procedurally invalid. The point is that an unexplained example cannot by itself supply the missing justification.
  7. Comparative legislation is instructive. Australia, Canada and the United Kingdom have adopted provisions expressly accommodating mergers occurring in the tested Fiscal Year, consistent with the OECD Commentary. By contrast, the UAE has retained the narrower wording of the Model Rules, as have the EU and Ireland. This distinction may support the view that the UAE legislature chose not to extend the rule to mergers occurring in the tested Fiscal Year, notwithstanding the broader interpretation reflected in the OECD Commentary.
  8. Accordingly, our preferred interpretation is that Article 6.1.1(a) cannot be extended to the merger year without a defensible explanation of its temporal wording. Neither the OECD Commentary nor the FTA Guide supplies one. This is not to deny the weight of their examples: they create a material risk that the FTA will assess the resulting Group as in scope for 2025. Nevertheless, the administrative outcome should be distinguished from the legal basis required to support it.

Analysis

The ordinary revenue threshold and the special merger rules

  1. Article 1.1.1 of Cabinet Decision No. 142 of 2024 establishes the general revenue threshold for the UAE DMTT. It applies where the MNE Group’s annual revenue, as reported in the consolidated financial statements of its Ultimate Parent Entity (UPE), amounts to at least EUR 750 million in two of the four Fiscal Years immediately preceding the tested Fiscal Year.

The tested Fiscal Year is excluded from the calculation. Accordingly, the 2025 scope assessment ordinarily considers the Group’s revenue for 2021, 2022, 2023 and 2024.

  1. Article 6.1 modifies the ordinary threshold test where a Group undergoes certain mergers or demergers. The provisions are intended to prevent a restructuring from restarting the revenue history of businesses whose combined historical scale would otherwise bring them within the scope of Pillar Two.

Article 6.1.1(a) addresses mergers of two or more Groups. Article 6.1.1(b) deals with certain combinations involving a stand-alone Entity. Article 6.1.1(c) establishes a different, prospective revenue test for Groups resulting from a qualifying Demerger.

  1. Importantly, the definition of a Merger in Article 6.1.2 and the operative revenue rules in Article 6.1.1 perform different functions. Article 6.1.2 determines whether an arrangement qualifies as a Merger. Article 6.1.1 identifies when that classification produces special revenue threshold consequences. Therefore, satisfying the definition of a Merger does not necessarily mean that the corresponding special revenue rule applies. Its own conditions, including any timing requirement, must also be satisfied.

Does the merger have to precede the tested Fiscal Year?

  1. Article 6.1.1(a) provides: “If two or more Groups merge to form a single Group in any of the four Fiscal Years prior to the tested Fiscal Year …”. Where that condition is met, the consolidated revenue threshold of the MNE Group is deemed to be met “for any Fiscal Year prior to the merger” if the sum of the revenue included in each of the predecessor Groups’ Consolidated Financial Statements for that year is equal to or greater than EUR 750 million. The provision therefore contains two distinct temporal references:
    1. the first fixes when the merger must occur, and
    2. the second fixes which Fiscal Years may be aggregated.

The second reference also limits the aggregation to years preceding the merger, so that for the merger year itself, and for any later year, revenue is taken from the merged Group’s own Consolidated Financial Statements in the ordinary way.

  1. Grammatically, the reference to the four preceding Fiscal Years qualifies the occurrence of the merger itself. The provision does not simply instruct the taxpayer to aggregate the predecessor Groups’ revenues for the four preceding years. It first specifies when the merger must have occurred for that aggregation mechanism to become applicable. This creates two separate requirements:
    1. two or more Groups must merge to form a single Group; and
    2. the merger must occur in one of the four Fiscal Years preceding the tested Fiscal Year.

Both conditions must be satisfied.

  1. In our case study, the first condition is met. Group A and Group B were pre-existing Groups, and all their entities came under common control. The second condition is not met for 2025. The merger took effect on 1 January 2025, whereas the relevant four preceding Fiscal Years are 2021–2024. The first day of 2025 is still part of the tested Fiscal Year, not one of the four preceding years. Accordingly, under the literal interpretation, Article 6.1.1(a) cannot be used to aggregate the predecessor Groups’ historical revenues when determining whether the resulting Group is within scope for 2025.
  2. The ordinary threshold rule does not produce a different result. The surviving UAE UPE previously headed Group A, whose consolidated revenue remained below EUR 750 million in each of the four preceding Fiscal Years. Group B’s historical revenues were not included in those consolidated financial statements.
  3. Without applying the special aggregation rule, there are no two qualifying preceding years. The resulting MNE Group is therefore outside the 2025 DMTT scope under the literal interpretation. The Group’s consolidated revenue for 2025 cannot change that conclusion because the ordinary test excludes the tested Fiscal Year itself, which the FTA Guide expressly confirms.

Competing grammatical reading

  1. However, a competing grammatical reading should be acknowledged, because it is the one on which the OECD Commentary appears to proceed. On that reading, the words “in any of the four Fiscal Years prior to the tested Fiscal Year” identify the period over which revenue is measured rather than the period within which the merger must occur. That reading draws its strength from paragraph (b) of the same provision. Paragraph (b) fixes the date of the transaction expressly: the acquirer must acquire or merge with the target “in the tested Fiscal Year”. It then uses the very phrase in issue for a different purpose altogether, namely to identify the years in which the target or acquirer “does not have Consolidated Financial Statements”. Within paragraph (b), therefore, the words “in any of the four Fiscal Years prior to the tested Fiscal Year” are unambiguously a measurement-window formula.

Paragraph 28 of the Commentary then states that, “as with paragraph (a)”, the deeming rule in paragraph (b) “is applied to each of the four Fiscal Years prior to the tested Fiscal Year”. The argument is therefore that identical words in adjacent paragraphs of the same provision should be given the same meaning in both.

  1. Paragraph 32 of the Commentary provides similar effect, although it carries less weight. It states that paragraphs (a) and (b) complement Article 1.1 “by determining the amount of consolidated revenue for each of the four Fiscal Years prior to the tested Fiscal Year”. Its function in context, however, is to distinguish paragraphs (a) and (b) from the freestanding current-year test in paragraph (c), rather than to construe the opening words of paragraph (a).
  2. In our view that reading cannot be sustained. The phrase “any of the four Fiscal Years prior to the tested Fiscal Year” follows immediately after the verb “merge” and precedes the consequence introduced by “then”: “If two or more Groups merge to form a single Group in any of the four Fiscal Years prior to the tested Fiscal Year, then the consolidated revenue threshold of the MNE Group for any Fiscal Year prior to the merger is deemed to be met for that year if the sum of the revenue included in each of their Consolidated Financial Statements for that year is equal to or greater than EUR 750 million”.

On ordinary principles it qualifies the event described, not the measurement that follows. More importantly, the measurement period is already fixed by separate words in the same provision, which confine the deeming to Fiscal Years “prior to the merger”. Reading the opening phrase as a second measurement rule would render one of the two references redundant.

Why Article 6.1.1(b) does not resolve the issue

  1. Article 6.1.1(b) expressly addresses certain transactions occurring in the tested Fiscal Year. It applies where an Entity that is not a member of any Group acquires or merges with another Entity or Group, subject to the additional conditions concerning historical consolidated financial statements. This provision is particularly relevant where a stand-alone acquisition vehicle acquires an existing Group or where two stand-alone Entities combine to create a Group. The OECD Commentary, paragraphs 24–30, explains the application of this rule and confirms that it may bring a newly formed Group within scope in the acquisition year itself.
  2. However, our case study involves two pre-existing Groups. Neither party was a stand-alone Entity immediately before the merger. The arrangement therefore falls within the factual category contemplated by Article 6.1.1(a), rather than the stand-alone-entity rule in Article 6.1.1(b).
  3. Moreover, the contrast between the two provisions reinforces the literal interpretation. The legislature expressly referred to transactions occurring in the tested Fiscal Year in paragraph (b), but not in paragraph (a). If paragraph (a) were also intended to cover mergers occurring during the tested year, the same wording could have been used.
  4. It is difficult to explain why this distinction should be disregarded when the legislation expressly differentiates the timing conditions for the two categories of Merger.
  5. The appeal to para (b) in support of applying para (a) to a merger occurring in the tested Fiscal Year therefore fails. Identity of wording establishes identity of meaning only where the words attach to the same thing, and here they do not. In para (a) the phrase qualifies the verb “merge”, and so fixes when the merger must occur. In para (b) it qualifies the absence of Consolidated Financial Statements; the date of the transaction has already been fixed by the separate words “in the tested Fiscal Year”.

One formula is used to do two different jobs, which is unsurprising, because the two paragraphs address two different problems. Paragraph (b) therefore supports the literal reading of paragraph (a) rather than displacing it: it shows both that the drafter knew how to bring the transaction year into the rule, and that the phrase relied upon does different work in each paragraph.

The OECD Commentary reaches the opposite conclusion

  1. Paragraphs 21–23 of the OECD Consolidated Commentary explain Article 6.1.1(a). Para 23 considers two Groups, each reporting revenues of EUR 400 million, EUR 300 million, EUR 300 million and EUR 400 million in Years 1–4. They merge “in Year 5”, without the Commentary specifying an effective date within that year, and their combined revenues exceed EUR 750 million in Years 1 and 4. The OECD expressly concludes that the resulting Group is within the scope of the GloBE Rules in Year 5.
  2. The example is directly inconsistent with the ordinary grammatical interpretation of Article 6.1.1(a). The merger occurs in Year 5, not in any of Years 1–4. Unlike the FTA example, the OECD does not specify whether the merger takes effect on the first day or later in Year 5. That omission does not reconcile the example with Article 6.1.1(a): any merger occurring during Year 5 falls outside the four preceding Fiscal Years. Nevertheless, the Commentary applies the special aggregation rule to determine the Group’s status for Year 5 itself.
  3. What is particularly striking is that the Commentary does not acknowledge or explain this discrepancy:
    • para 21 describes the general purpose of the provision;
    • para 22 explains how the predecessor Groups’ revenues are aggregated;
    • para 23 then applies that mechanism to a merger occurring in the tested year.

None of these paragraphs addresses the express condition concerning the year in which the merger must occur.

  1. We do not consider that the inconsistency is resolved merely by invoking a purposive interpretation. Such an interpretation must explain why, in context, the enacted words can reasonably bear the proposed meaning. The Commentary does not identify an alternative reading of the reference to the preceding four Fiscal Years, recognise a drafting error, or explain why that reference should be disregarded. The measurement-period reading implicit in paragraphs 28 and 32 is assumed rather than stated as a construction of Article 6.1.1(a), and it is not reconciled with the separate words limiting the deeming to Fiscal Years prior to the merger. The objective of continuity in the revenue test is relevant, but the objective does not by itself remove an express condition.

The reference to a merger in Year 5 might therefore be an inadvertent illustrative error or it might reflect an intended, but unstated, expansion of the rule. The material reviewed does not establish which explanation is correct. In either case, the Commentary states a result rather than providing a reasoned construction of Article 6.1.1(a).

The absence of reasons matters

  1. The distinction is between a conclusion and a legal justification for it. Paragraph 23 establishes that the OECD considers a Year 5 merger to bring the resulting Group within scope in Year 5. It does not establish how this follows from the separate requirement that the merger occur in one of the four preceding Fiscal Years.
  2. A useful analogy is judicial reasoning. If a court reached an outcome seemingly inconsistent with an express statutory condition without addressing that condition, the omission would raise a serious concern about the adequacy of its reasons. A reviewing court might ultimately uphold that outcome through a legally substantiated interpretation, but simply ignoring the condition would not be an adequate explanation.
  3. The same methodological standard should be applied here. The Commentary is entitled to interpret the Model Rules and illustrate their operation. Where its example departs from the apparently unambiguous text, however, it should explain the legal route from the text to the result. Until such an explanation is available, we would favour the wording of the Model Rules and the corresponding UAE legislation over the unexplained example.
  4. Furthermore, this inconsistency is not a recent development. The same example appeared in para 23 of the original OECD Commentary.[1] It has remained in subsequent versions, including the 2023, 2025 and 2026 Consolidated Commentaries. This shows that the intended treatment has been consistent for several years. It does not, however, resolve the discrepancy between that treatment and the Model Rules.
  5. The way in which both bodies describe the rule points the same way. Paragraph 19 of the Commentary, which introduces Article 6.1, lists the (a) scenario simply as one “where two or more Groups merge to form a single Group”, without any temporal qualification. The FTA Guide describes the provision as, “effectively, in the context of a merger, … a backward aggregation test where the revenues of the merging parties are combined for the Fiscal Years before the merger took place”. Each description characterizes the rule exclusively by reference to the years whose revenues are combined, and neither mentions any condition as to when the merger must occur. That is evidence that the merger-year outcome reflects a settled conception of the provision rather than an isolated slip in one example. It is equally evidence that the conception has been assumed rather than derived from the text of underlying legislation.

The FTA Guide follows the OECD Commentary

  1. Example 16 on page 48 of the TTGREG1 concerns two Groups merging with effect from 1 January 2025. The FTA aggregates their revenues for 2021–2024 and concludes that the resulting Group falls within scope in 2025 because the combined revenues reach EUR 750 million in 2021 and 2024.

The example expressly refers to Article 6.1.1(a). Unlike para 23 OECD Commentary, which refers only to a merger “in Year 5”, the FTA specifies that the merger takes effect on 1 January 2025. This removes any uncertainty about the transaction date, without resolving the statutory timing conflict: 1 January 2025 is still within the tested Fiscal Year.

It might be said that the date itself resolves the difficulty. A merger taking effect at the start of 1 January 2025 takes effect at the instant at which the 2024 Fiscal Year closes, and could on that basis be characterised as occurring in 2024, that is, in one of the four preceding Fiscal Years. That characterisation does not, however, produce the result stated in Example 16. If the merger is treated as occurring in 2024, the deeming in Article 6.1.1(a) reaches only those Fiscal Years “prior to the merger”, namely 2021 to 2023, in which the combined revenues are EUR 820 million, EUR 600 million and EUR 600 million respectively. Only one of those years would qualify, and 2024 would fall to be measured by reference to Consolidated Financial Statements of the merged Group that do not exist for that year. The resulting Group would again be outside scope for 2025. On either characterisation of 1 January 2025, therefore, the enacted words do not deliver the conclusion reached in the example.

  1. Consequently, the discrepancy is not limited to the OECD Model Rules and Commentary. It is reproduced in the FTA’s interpretation of the UAE legislation. The Guide itself explains, immediately before Example 16, that Article 6.1.1(a) concerns mergers occurring in one of the four Fiscal Years preceding the tested Fiscal Year, and it reproduces both limbs of the provision on the same page: the Groups must “merge into a single Group in any of the four Fiscal Years before the tested Fiscal Year”, and the threshold is then deemed to be met “for any Fiscal Year prior to the merger”. It then applies the provision to a merger occurring during the tested year. No explanation is offered for that departure.

Comparative legislation

  1. The comparison with other jurisdictions is particularly informative.
    1. Section 6-5(2)(a) of the Taxation (Multinational—Global and Domestic Minimum Tax) Rules 2024 (Cth) expressly applies where the merger occurs: “during the test year or the previous 4 Fiscal Years”. This wording accommodates the OECD example without requiring any departure from the statutory text.
    2. Section 130(1) and (4) of the UK Finance (No. 2) Act 2023 similarly covers mergers occurring either in the qualifying period itself or during the previous four accounting periods.
    3. Section 9(3) of the Canadian Global Minimum Tax Act adopts a different drafting approach. Where an MNE Group is formed by a merger in a particular Fiscal Year, the historical revenues of the predecessor Groups or stand-alone Entities are aggregated for the relevant pre-merger years. The provision does not impose the same restriction requiring the merger itself to occur before the tested year.
  2. By contrast, other jurisdictions reproduce the narrower wording.
    1. Article 33(2) of the EU Directive 2022/2523 refers to “merge to form a single group in any of the last four consecutive fiscal years immediately preceding the tested fiscal year…”.
    2. Section 111AL(2) of the Taxes Consolidation Act No. 39 of 1997 similarly limits the provision to the cases “where 2 or more groups merge to form a single group … in any of the 4 consecutive fiscal years immediately preceding a fiscal year…”.
  3. These differences demonstrate that the OECD’s intended outcome can be reflected expressly in domestic legislation. Australia and the United Kingdom have done so by including the tested year in the merger period. Canada has achieved a similar result through a different formulation. The UAE, however, has retained the narrower wording of the OECD Model Rules.
  4. This comparison supports the argument that the absence of a reference to the tested year in Article 6.1.1(a) is legally material. Nevertheless, the comparative legislation does not establish why the different formulations were adopted. In particular, we have not identified official legislative materials confirming that these differences were deliberately introduced to correct the inconsistency under discussion.
  5. These comparisons are not an independent basis for construing UAE law. They do, however, show that a legislator seeking to cover mergers in the tested year can say so expressly. They also weaken the suggestion that the words limiting Article 6.1.1(a) to preceding years can be treated as immaterial.

Has the inconsistency been addressed in professional literature?

  1. The treatment of mergers under Article 6.1 has been examined in professional and academic publications. For example, João Vitor Gomes Martins reproduces the temporal requirement of Article 6.1.1(a) and subsequently illustrates its application to two Groups merging in Year 5, concluding that the resulting Group falls within scope in that same year.[2] The publication therefore follows the OECD Commentary’s approach without expressly addressing the apparent inconsistency with the statutory wording. Other professional publications similarly describe the merger rules as capable of accelerating Pillar Two scope in the year of an acquisition.
  2. However, our review of the publicly available OECD, legislative, administrative, academic and professional materials has not identified an express analysis of the particular inconsistency between the four-year temporal condition in Article 6.1.1(a) and the merger-year example in para 23. This does not establish that the issue has never been raised. It indicates that the published discussions located generally accept the OECD example without separately addressing its consistency with the operative rule.
  3. A broader discussion of the limits of interpretation is provided by Margriet Lukkien and Jorn Steenbergen.[3] The authors distinguish between the use of OECD materials to interpret EU directives and the interpretation of national legislation implementing those directives:
    • In the former context, they argue that OECD reports and commentaries may inform the interpretation of EU directives but cannot justify an interpretation contrary to the directive itself (contra legem).
    • In the latter context, they recognise that national legislation may be interpreted broadly to achieve consistency with EU law, but not contrary to its literal wording.

The authors also acknowledge that the CJEU has not yet clarified the limits on using subsequent OECD commentaries as interpretative sources. Although these observations concern EU law and are not binding in the UAE, they provide useful comparative support for distinguishing the interpretative value of OECD materials from their ability to depart from express legislative provisions.

Can the OECD Commentary override the UAE legislation?

  1. The UAE position requires particular consideration because the OECD Commentary has been formally adopted for interpretative purposes. Ministerial Decision No. 96 of 2026 adopts the 2026 OECD Consolidated Commentary and related agreed administrative guidance for purposes of Cabinet Decision No. 142 of 2024. The Commentary therefore has greater interpretative significance in the UAE than an ordinary foreign publication. Furthermore, the FTA Guide expressly adopts the merger-year interpretation. Accordingly, it would be reasonable to expect the FTA to apply that interpretation in practice.

The OECD Commentary (2026) itself draws a relevant distinction. Its Introduction (para 3) describes the Model Rules as “a template for domestic implementation” and the Commentary as “guidance on the interpretation and application of those rules”. Para 14 also stresses that jurisdictions implementing the common approach should achieve outcomes consistent with both the Model Rules and the Commentary. That commitment is important, but neither paragraph establishes which instrument prevails if they are inconsistent.

  1. The OECD itself distinguishes these legislative techniques. Paragraphs 77-82 of its Minimum Tax Implementation Handbook (2023)[4] discuss the difference between transcribing the Model Rules, incorporating materials by reference, using an interpretative clause and giving subsequent guidance direct effect in domestic law. Para 82 identifies interpretation in light of the Commentary and direct incorporation as distinct methods. The Handbook does not suggest that interpretative guidance may automatically amend a conflicting condition in domestic legislation.
  2. The OECD Global Minimum Tax Implementation Toolkit (2026),[5] in paras 128–130, discusses the effect of interpretative clauses included in national legislation. Para 128 identifies consistency with the Model Rules and Commentary as “an interpretative objective unless there is a direct conflict”, while distinguishing clarifications from substantive amendments that may require legislative changes. Importantly, para 129 recognises that, even “where the update to the Commentary does not necessarily operate as a mere clarification to the language of the Model Rules, the interpretation clause can allow the tax administration of a jurisdiction to interpret the domestic law in the light of this new update”. Para 130 qualifies this approach by acknowledging that the scope of such interpretative authority depends on the domestic legal system and may be considerably more limited in some jurisdictions.
  3. The Toolkit also expressly recognises potential inconsistencies between national legislation and OECD materials. Box 13 discusses such inconsistencies in Australia, including those arising from incomplete incorporation of OECD guidance or drafting oversights, and describes interim administrative arrangements pending legislative amendments. Para 136 similarly recognises that public guidance may address inconsistencies between domestic legislation and OECD materials, at least temporarily.
  4. These observations demonstrate that the OECD recognises both the possibility of inconsistencies between national legislation and OECD materials and the possibility of resolving certain differences through interpretation rather than legislative amendments. However, the permissibility of doing so depends on the relevant domestic legal framework. Furthermore, the Toolkit principally addresses discrepancies arising in the domestic implementation of OECD materials, including subsequent updates to the Commentary. It does not directly resolve the different issue considered here: an apparent inconsistency between the original Model Rules and an example contained in their own Commentary. Nor does it establish a general authority for the Commentary to override an express legislative condition.
  5. A further legal consideration is Article 133 of the UAE Constitution. It requires federal taxes to be imposed, amended and levied by and within the limits of the law. In our view, that principle supports particular caution before interpreting adopted guidance as extending the circumstances in which a taxpayer becomes subject to DMTT. Article 133 does not itself decide how Article 6.1.1(a) should be construed or the legal effect of Ministerial Decision No. 96 of 2026, but it is relevant to the limits of the suggested expansion.
  6. Nevertheless, there is a distinction between adopting interpretative guidance and amending the substantive conditions of a tax. Article 6.1.1(a) is part of the Cabinet Decision establishing the UAE DMTT regime. Ministerial Decision No. 96 of 2026 does not expressly amend its temporal condition. In our view, a credible argument exists that interpretative guidance should not extend the statutory scope of taxation by disregarding an express requirement imposed by the legislation.

Paragraph 41 of the Commentary to Article 8.3.1 further states that administrations should follow Agreed Administrative Guidance subject to domestic-law requirements. That statement concerns Agreed Administrative Guidance, not the legal hierarchy between the Model Rules and their Commentary, and should not be treated as settling our issue. It nevertheless shows that the OECD recognises constraints arising under domestic law.

  1. The EU framework provides useful comparative context. Recital 24 of Council Directive (EU) 2022/2523 expressly envisages using the OECD materials as sources of illustration and interpretation only to the extent consistent with that Directive and Union law. This qualification is not part of UAE legislation and does not decide the UAE question. It does, however, recognise the same basic distinction between an interpretative aid and the legal instrument being interpreted.
  2. A competing view is that the revenue-continuity objective shows that the temporal wording of Article 6.1.1(a) contains a drafting defect, so the rule should operate in the merger year. The repeated OECD example and the FTA Guide make that an important practical position. However, neither identifies the defect expressly, examines the alternative ordinary meaning, or explains why the specific words can be set aside. We consider that an intended policy outcome alone is not sufficient to answer that legal objection.
  3. There are therefore two competing positions:
    1. Under the literal interpretation, the condition that the merger must occur in one of the four preceding Fiscal Years is binding. Article 6.1.1(a) cannot apply to a merger occurring in the tested Fiscal Year itself.
    2. Under the OECD and FTA interpretation, the special aggregation mechanism applies immediately in the merger year, reflecting the intended continuity of the predecessor Groups’ revenue history.

In our view, the first position is the better reading of the legislation as it stands. The second position is strongly reflected in official guidance, but an example cannot be treated as silently rewriting the legal condition. This preference does not eliminate uncertainty: an authority or court could adopt the broader interpretation if it identified and substantiated a permissible legal basis for doing so. That reasoning has not been supplied by the Commentary or Guide.

Application to the case study

  1. Applying the literal interpretation, the Group resulting from the merger effective on 1 January 2025 would not meet the UAE DMTT revenue threshold for 2025. The transaction satisfies the Merger definition under Article 6.1.2(a), but it does not satisfy the separate timing condition in Article 6.1.1(a). Article 6.1.1(b) is unavailable because both parties were pre-existing Groups. Article 6.1.1(c) is also irrelevant because the transaction did not involve the separation of an existing Group into two or more Groups.

Under the ordinary Article 1.1.1 test, Group A’s historical consolidated revenue did not reach EUR 750 million in any of the four preceding Fiscal Years. Accordingly, the resulting Group is outside the UAE DMTT scope for 2025 under the literal reading, notwithstanding that the combined historical revenues of Groups A and B exceeded the threshold in 2021 and 2024.

  1. Under the OECD and FTA interpretation, the opposite conclusion follows. The predecessor Groups’ historical revenues would be aggregated for 2021–2024. The threshold would be met in 2021 and 2024, making the resulting Group subject to the UAE DMTT for 2025.
  2. The difference is therefore not merely theoretical. It determines whether the Group’s UAE Constituent Entities are subject to the DMTT regime and its associated obligations for the merger year.
  3. For 2026, the timing difficulty would generally disappear. The merger occurred in 2025, which is then one of the four preceding Fiscal Years. Article 6.1.1(a) could therefore apply to the 2026 threshold test, provided its other conditions are met. The result would depend on the revenue history within the relevant 2022–2025 period. In particular, the historical combined revenues for 2022, 2023 and 2024 and the actual consolidated revenue for 2025 would need to be considered. Thus, the statutory interpretation may affect not only whether the special merger rule applies, but also the first Fiscal Year in which the resulting Group enters the UAE DMTT scope.

Conclusion

  1. Article 6.1.1(a) of Cabinet Decision No. 142 of 2024 expressly limits the special merger aggregation rule to mergers occurring in one of the four Fiscal Years preceding the tested Fiscal Year. Nevertheless, para 23 of the OECD Commentary applies the rule to a merger occurring “in Year 5” without specifying an effective date, while Example 16 of the FTA Guide No TTGREG1 expressly applies it to a merger effective on 1 January 2025. In both examples, the merger occurs in the tested Fiscal Year itself. The discrepancy is not acknowledged or explained in either publication.
  2. Comparative legislation provides additional support for treating this as a substantive interpretative issue. Australia and the United Kingdom expressly include mergers occurring in the tested year, while Canada uses a different formulation accommodating the same result. The UAE, like the EU Directive and Ireland, retains the narrower temporal condition.

We therefore prefer the statutory reading: a merger occurring in 2025 does not satisfy the condition in Article 6.1.1(a) that the merger occur in one of the four preceding Fiscal Years. On the case-study facts, the resulting Group should consequently be outside the UAE DMTT scope for 2025 on that interpretation. The possibility that the OECD illustration contains an inadvertent mismatch cannot be excluded, although it cannot be established from the available materials.

  1. The contrary outcome is clearly stated in the OECD Commentary and TTGREG1, and it remains the more likely administrative treatment. However, repeating an outcome does not provide the missing justification. Just as a judicial interpretation departing from the apparent meaning of a rule would require reasons capable of review, an official example should address the wording it appears to override. We do not suggest that the Commentary commits a formal procedural error under court rules. Rather, its failure to give reasons is a material weakness in its persuasiveness as an interpretation of the enacted law.
  2. The unresolved question is therefore not simply what the OECD intended, but on what legal basis the words “in any of the four Fiscal Years prior to the tested Fiscal Year” can include a merger occurring in the tested year. The OECD and the FTA have not provided that basis. Until they do, the legal conclusion, in our view, is to give effect to the express statutory condition, while recognising the substantial practical risk that the FTA will follow Example 16.

A reasoned legislative clarification or judicial interpretation could settle the issue. An unexplained example should not be treated as having done so, in our view. The Commentary’s Introduction and its discussion of Agreed Administrative Guidance, read together with the OECD Implementation Toolkit, confirm that consistency is an objective but that its legal implementation remains subject to national-law constraints. They strengthen the case for a reasoned justification or legislative correction rather than silent departure from the text. They do not independently establish which interpretation a UAE court must adopt.

Disclaimer

Pursuant to the MoF’s press-release issued on 19 May 2023 “a number of posts circulating on social media and other platforms that are issued by private parties, contain inaccurate and unreliable interpretations and analyses of Corporate Tax”.

The Ministry issued a reminder that official sources of information on Federal Taxes in the UAE are the MoF and FTA only. Therefore, analyses that are not based on official publications by the MoF and FTA, or have not been commissioned by them, are unreliable and may contain misleading interpretations of the law. See the full press release here.

This study has not been commissioned, authorised, or endorsed by the Ministry of Justice, the Federal Supreme Court, or any other judicial authority in the UAE. It is not intended to convey, and should not be understood as conveying, any official position of those authorities. Nor does it purport to suggest that the interpretations, conclusions, or proposals set out in it are binding on the courts or must necessarily be adopted in judicial practice.

You should factor this in when dealing with this article as well. It is not commissioned by the MoF or FTA. The interpretation, conclusions, proposals, surmises, guesswork, etc., it comprises have the status of the author’s opinion only. Furthermore, it is not legal or tax advice. Like any human job, it may contain inaccuracies and mistakes that I have tried my best to avoid. If you find any inaccuracies or errors, please let me know so that I can make corrections.

Footnotes

  1. OECD (2022), Tax Challenges Arising from the Digitalisation of the Economy – Commentary to the Global Anti-Base Erosion Model Rules (Pillar Two), First Edition: Inclusive Framework on BEPS, OECD Publishing, Paris, https://doi.org/10.1787/1e0e9cd8-en. ↑
  2. The Global Minimum Tax (“Pillar Two”) and the Future of Cross-Border M&A, published in the Harvard International Law Journal, Volume 67, Issue 1 (2026), pages 252–254. ↑
  3. “Interpretation of EU tax directives and the impact on the national laws of EU Member States”, International Bar Association, 20 February 2024. ↑
  4. OECD (2023), Minimum Tax Implementation Handbook (Pillar Two), OECD/G20 Base Erosion and Profit Shifting Project, OECD, Paris, https://www.oecd.org/tax/beps/minimum-tax-implementation-handbook-pillar-two.pdf. ↑
  5. OECD (2026), The Global Minimum Tax Implementation Toolkit, OECD Forum on Tax Administration, OECD Publishing, Paris, https://doi.org/10.1787/0ee66d84-en. ↑