Updated GloBE Guide: Canada
Analysis of the implementation of the Pillar Two GloBE rules for Canada, updated for the Budget Implementation Bill, 2024, No. 1, issued on April 30, 2024.
Whilst the treatment of investment property for financial accounting purposes is important when determining the GloBE treatment, of even more importance are any differences between the financial accounting treatment and the domestic tax treatment. In many cases, it is these differences that (subject to GloBE adjustments) will be a determining factor for a low GloBE ETR.
A number of different accounting standards apply to investment property under IFRS. In particular, the acquisition and construction of real estate that is held as investment property is governed by:
IAS 40 (Investment property);
IAS 16 (Property, plant and equipment);
IAS 23 (Borrowing costs); and
IFRS 13 (Fair Value Measurement)
Under IAS 40, entities can adopt either the fair value model or the cost model as their accounting policy for subsequent measurement of investment property. The policy selected must be applied to all their investment property.
Under the fair value model investment property is revalued at the end of each accounting period with unrealised gains and impairment losses being taken directly to the profit and loss account. When a property is sold the base cost for calculating the gain or loss for financial accounting purposes is this carrying value.
This differs significantly from the tax treatment with most jurisdictions using a cost model with changes in fair value ignored.
The fair value model can lead to temporary differences that would result in deferred tax assets or liabilities. Fair value increases for financial accounting purposes would result in a deferred tax liability (ie Dr Deferred Tax P&L, Cr Deferred Tax Liability) that would increase the tax charge in the P&L. Impairment losses would result in a deferred tax asset.
Similarly, enhanced tax depreciation rates can also result in deferred tax liabilities.
GloBE Adjustments
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Analysis of the implementation of the Pillar Two GloBE rules for Canada, updated for the Budget Implementation Bill, 2024, No. 1, issued on April 30, 2024.
Whether multinationals adopt a centralized or decentralized approach to Pillar Two will be one of the key factors in correctly establishing the systems and architecture to collect, manage, analyse and store source data for the Pillar Two effective tax rate and top-up tax calculation.
The Pillar Two effective tax rate (ETR) calculation for investment entities is similar to the standard ETR calculation, however, there is an important twist in that the top-up tax is adjusted for minority interests. There is no adjustment for minority interests under the standard ETR calculation. In this article we look at the impact of this.
On April 25, 2024, the Polish Ministry of Finance issued a draft law to implement the EU Minimum Tax Directive into domestic law. Read our review of the draft law.
The tax data mapping assessment is the cornerstone for MNEs looking to implement an effective approach to manage Pillar Two. All systems changes flow from this.
Analysis of the domestic implementation of the Pillar Two Global Minimum Tax rules in Barbados for accounting periods beginning on or after January 1, 2024. Updated for the draft legislation being considered by the Barbadian Parliament.
The Pillar Two rules include specific rules for Joint Ventures (JVs) that would otherwise not be within the scope of Pillar Two due to not being consolidated in the financial accounts of the MNE group. However, of more interest is how the amount of top-tax tax (and by implication the amount not collected) varies depending on the JV group structure. Read more in this article.
MNE groups should pay careful attention to any group financing companies in light of the Pillar Two Rules. In this analysis we look at the impact of Pillar Two under for both general GloBE and QDMTT purposes.
On March 22, 2024, the Decree of the Ministry of Economy and Finance No. 1048, to amend the Enforcement Regulations of the International Tax Adjustment Act entered into force.
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