Pillar Two: GloBE Deferred Tax Recalculations Based on GloBE Carrying Values

Section 2 of the Fourth Set of OECD Administrative Guidance (issued on June 17, 2024) provides details on the use of GloBE carrying values and the impact that these will have on the GloBE ETR calculation.
In particular, when calculating the deferred tax expense for GloBE purposes (which is included in adjusted covered taxes to determine the GloBE ETR), the deferred tax expense in the accounts will be excluded and a separate GloBE deferred tax calculation is required. This will be based on the substituted GloBE carrying value and determined using the financial accounting standard used for GloBE purposes.
Constituent Entities will therefore be required to maintain accounting records to support the computation of GloBE Income or Loss and Total Deferred Tax Adjustment Amount by reference to the GloBE carrying values.
The GloBE Rules generally rely on the amounts reflected in the financial accounts of a Constituent Entity used in the preparation of Consolidated Financial Statements of the UPE.
As such, when calculating the adjusted covered taxes of an entity the deferred tax is based on deferred tax expense accrued in the financial accounts.
However, there are cases where the GloBE Rules require/permit a Constituent Entity to:
-determine its GloBE Income or Loss and Adjusted Covered Taxes using a GloBE carrying value that is different from the carrying value reflected in the financial accounts; or
-determine its GloBE income or loss by substituting an amount contained in the financial accounts for another amount (eg under the Stock-based compensation election where the tax deductible amount is included for GloBE purposes rather than the amount expensed in the financial accounts).
In both of these circumstances there will be a requirement to consider a recalculation of the deferred tax expense based on the values used for GloBE purposes.  

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As with most aspects of the GloBE Rules, Article 6.3.1 of the OECD Model Rules provides that the GloBE treatment of intra-group transfers of assets follows the accounting treatment.

The accounting treatment generally values the transfer of assets at fair value (eg FRS 102 requires the total fair value of any consideration as well as the assets, liabilities and contingent liabilities of the acquirer to be determined).

Given many domestic tax regimes permit gains and losses to be deferred on intra-group transfers, Article 6.3.2 of the OECD Model Rules include a similar rule which applies where there is a ‘GloBE Reorganisation’.

A Globe Reorganisation occurs where there is a transfer of assets and:

(a) the consideration for the transfer is, in whole or in significant part, equity interests

(b) the transferors gain or loss on the assets is not wholly or partly subject to tax; and

(c) the tax law applicable to the transferee entity requires them to use the transferor’s tax base as the carrying value of the assets (the so-called ‘stand in the shoes’ principle).


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