Purchase Accounting Adjustments and the CbCR Safe Harbour

The December 2023 Administrative Guidance provides more guidance on whether  purchase accounting adjustments need to be removed from Qualified Financial Statements for the purposes of the Transitional CbC Safe Harbour

For Pillar Two purposes, purchase accounting adjustments are ignored. Therefore, there is no rebasing of assets and liabilities on a share acquisition.

Similarly, any deferred tax entries relating to this are removed.

If, for instance, for accounting purposes, the consideration for the share purchase exceeded the market value of the assets and liabilities, goodwill would be created. This would be a Dr to the balance sheet and a Cr to deferred tax liabilities.

The amortization of the goodwill would be offset by the deferred tax credit as the deferred tax liability was released.

The deferred tax entries would need to be eliminated for Pillar Two purposes.