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Financial Accounting Net Income or Loss

Financial Accounting Net Income Or Loss

Importantly, unlike when determining the revenue for the purposes of the revenue threshold, consolidation adjustments that eliminate intra-group transactions are excluded.

The financial accounting net income or loss is based on the accounting standard used to prepare the consolidated financial statements.

Key Takeaways of the Financial Accounting Net Income or Loss

• There is no reduction in the financial accounting income or loss figure for any minority interest in the constituent entity held by other entities (this is instead taken into account when allocating any top-up tax). For more information, see Allocation of Top-Up Tax.

• Because the financial accounting income or loss figure is based on the profit and loss account, any amounts included in the Other Comprehensive Income section of the financial accounts are generally excluded. Other Comprehensive Income generally consists of items that impact the balance sheet but that aren’t reported in the profit and loss account.

This would include things like unrealized gains or losses on derivatives or retirement benefit plans and foreign currency translation adjustments.

• Although Other Comprehensive Income is generally excluded from the financial accounting income figure, revaluation method gains or losses that are included there are included.

• Consolidated financial accounts will have been prepared based on a materiality threshold. This threshold also applies to the Pillar Two GloBE income calculation.

• If the Constituent Entities’ financial accounts are prepared using an accounting standard different from the Ultimate Parent Entity (UPE) that prepares the consolidated accounts, Article 3.1.3 of the OECD Model Rules provides that another accounting standard may be used if:

o the financial accounts of the constituent entity are maintained based on that accounting standard;

o the information contained in the financial accounts is reliable; and

o permanent differences in excess of EUR 1 million arising from the application to transactions of a particular standard that differs from the UPE’s financial standard, conform to the UPEs accounting standard.

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