Read this as the July 2023 edition
Approved on 13 July 2023, this 91-page package addresses currency conversion, tax credits, the substance-based income exclusion (SBIE), qualified domestic minimum top-up taxes (QDMTTs) and two safe harbours. This article follows that original edition. Its transitional dates and statements about future guidance describe the position in July 2023; they are not a substitute for later OECD amendments or the implementing jurisdiction’s legislation.
Use one presentation currency for GloBE calculations
Compute GloBE results and complete the GIR in the presentation currency of the consolidated financial statements, using amounts before intra-group elimination. Information already translated for consolidation is not translated again. Where supporting detail has not been translated, use the applicable authorised accounting standard, including its treatment of hyperinflation. A reasonable average rate can be appropriate where transaction-level translation is impracticable, but a hyperinflationary economy cannot simply be treated as an ordinary annual-average conversion. Consistency and transparent documentation matter; the guidance does not require every entity to use an identical operational translation system.
Five currency examples and local tax payment
The five examples distinguish balances already translated from Japanese or US accounts, monthly detail reasonably translated using annual averages, newly acquired entities awaiting systems integration, acquired groups retaining their own method during a three-year integration and an Argentine hyperinflationary currency. A group may therefore have different appropriate conversion methods, including within one jurisdiction. Payment of an IIR or UTPR liability in domestic currency is a separate step: domestic law can prescribe reasonable annual-average, year-end or payment-date conversion with sufficient certainty.
Threshold translation is different from financial translation
Where actual amounts and a statutory threshold are in different currencies, translate for the threshold comparison using the preceding calendar December average. Apply ECB references for euro thresholds, with the stated central-bank fallback; use the relevant central-bank reference for non-euro comparisons. Each historical revenue year keeps its own rate rather than being retranslated at the current year’s rate. A fiscal year beginning in July 2024 uses December 2023. The approach also applies to subsequently agreed thresholds, including the CbCR safe-harbour EUR 10 million revenue and EUR 1 million profit tests. Once a threshold is crossed, translate the resulting accounting adjustment using ordinary accounting rules, not the December threshold rate.
Eliminate asymmetric foreign-exchange differences
Where accounting and tax functional currencies are identical, no asymmetric-FX adjustment is made merely because local tax law exempts a gain. Where they differ, include tax FX measured against the accounting functional currency, remove accounting FX measured against the tax functional currency, and remove accounting FX on a third currency while including the corresponding tax FX. A tax-exempt FX amount may have to be calculated as if recognised under the relevant accounting method. Translate the resulting adjustment into the presentation currency. The deferred-tax-liability recapture exception for FX uses the constituent entity’s functional currency, not the group’s presentation currency.
Classify credits by refundability before transferability
A qualified refundable tax credit (QRTC) is refundable in cash or equivalent within four years and is treated as income. Test refundability first: a QRTC remains a QRTC even if transferable. If the refundability test fails, assess whether the credit is a marketable transferable tax credit (MTTC), which also receives income treatment. Non-marketable transferable credits and other credits receive covered-tax reduction treatment. Split a partially refundable or transferable credit into its relevant portions. A credit usable only to offset covered-tax liabilities is not refundable merely because it can be used against tax.
The MTTC legal-transfer tests differ for sellers and buyers
The originator must be able to transfer the credit to an unrelated person in its origination fiscal year or within 15 months after that year ends. A purchaser must be legally able to transfer it again to an unrelated person in the fiscal year of purchase; the originator’s additional 15-month window does not apply to purchasers. Test marketability separately: an originator’s qualifying actual sale, or evidence from similar unrelated transactions for a retained or related-party-transferred credit, must meet the marketable-price floor within the specified period. A purchaser must acquire from an unrelated person at or above that floor. Relatedness includes more than 50% beneficial ownership or voting power and value, common control and relevant factual control.
Calculate the marketable-price floor using discounted value
The floor is 80% of the net present value of the credit. Discount maximum legally usable annual amounts using the appropriate government-bond yield with the same or a similar maturity, capped at five years. Use the transfer year, or the origination year where required for a retained credit. A face amount of 100 usable as 20 annually for five years at 4% has present value 89.04 and a floor of 71.23. Private-market evidence must be supportable using relevant fair-value principles, rather than treating every transferable instrument as automatically marketable.
Originator income and subsequent sale or expiry
A QRTC or MTTC generally enters income at face value when it originates. If the accounting policy treats an asset-related credit as a reduction of asset cost or deferred income, spread it over the productive life using that policy. An MTTC sold within the 15-month window is recognised at its sale price in the origination year. A later sale creates a current difference, or a remaining-life adjustment for an asset-related credit; expiry produces the corresponding loss or asset adjustment. In the asset example, face credit 100 over five years is sold for 90 in year two, and the difference is allocated over the remaining four years.
Purchasers recognise the discount as the credit is used
For purchased MTTCs, and purchased QRTCs under the same approach, recognise the purchase discount as income in proportion to use. Face amount 100 bought for 90 and used to settle 70 of tax produces income 7. Subsequent transfers recognise the difference using the adjusted basis, and expiry gives a loss for the remaining unrecovered investment: after that use, 90 plus 7 minus 70 leaves 27. If a QRTC or MTTC was recorded as a reduction of tax expense, restore covered tax and recognise the required GloBE income instead.
Other credits reduce covered tax, including refunds
For a non-MTTC or other credit, the originator reduces covered tax when used for the liability of a tax period ending in the fiscal year, or by sale proceeds in the sale year. A purchaser reduces tax by the proportionate discount when used; a resale gain reduces covered tax, while a loss reduces GloBE income. These outcomes apply despite a different accounting presentation. Refunds of previously claimed covered tax generally require the Article 4.6.1 prior-year treatment at the EUR 1 million threshold; otherwise reduce current accrued tax, including where another constituent entity receives the refund.
Proportional amortisation for qualified flow-through benefits
Use proportional amortisation where the accounting method uses it. Otherwise an irrevocable election must be made in the acquisition year or first GloBE year. Annual investment recovery equals investment multiplied by the year’s expected credits and loss-related tax benefits divided by total expected benefits over the relevant period through liquidation or the flip. Benefits exceeding proportional recovery reduce covered tax; they do not create additional positive covered tax. The illustrated investment of 90 produces total expected benefits of 100: annual benefits 25, 25, 16.67, 16.67 and 16.67 give amortisation 22.50, 22.50, 15, 15 and 15, and net tax benefits 2.50, 2.50, 1.67, 1.67 and 1.67. The original rounded columns sum to 100 and 90.
Qualified ownership can differ from IFRS presentation
A qualified ownership interest is an investment in a tax-transparent entity, not necessarily an equity line in the investor’s consolidated accounts. It must be equity for local tax and would be equity under an authorised standard in the transparent entity’s jurisdiction. This accommodates IFRS tax-equity arrangements presented as investor loans. At inception, expected returns including distributions, loss benefits and QRTCs, but excluding other credits, must be below the investment cost. A genuine economic risk must remain, and the arrangement cannot be protected from that risk or restricted to groups subject to GloBE. Whether the credit is used or transferred is not decisive.
SBIE follows the location and working-time tests
Eligible payroll includes relevant part-time employees and independent contractors working in ordinary operations under the group’s control. For employees spending more than 50% of working time in their employer’s jurisdiction, the full eligible cost may be included; at 50% or less, include only the local proportion. Eligible tangible assets follow the corresponding more-than-50% versus proportionate-use approach. Do not allocate an unclaimed foreign portion to another entity without the required basis, or deem international waters or space domestic merely through formal registration. Allocate permanent-establishment payroll and assets between the main entity and PE first.
Evidence, partial claims and share-based pay
An enforced policy of two remote days and three office days can support the working-time test without tracking every day. Otherwise retain auditable evidence, or forgo the unsupported claim. Groups may claim only a subset of eligible payroll or assets without calculating the maximum possible SBIE. Share-based compensation uses the accounting payroll amount for SBIE, even where an Article 3.2.2 election substitutes the tax deduction in the GloBE income calculation.
Operating leases allow a limited lessor asset amount
A finance lease leaves the lessor with a receivable, while the lessee may include its recognised tangible right-of-use asset. A lessee cannot invent such an asset where accounting does not recognise one, for example an immaterial or short lease. For operating leases, the local lessor may include the excess of its average carrying value over the average lessee right-of-use amount. For a lessee outside the constituent-entity framework, use undiscounted remaining payments, including relevant extensions. For regularly repeated rentals to different lessees averaging at most 30 days each, the lessee amount is deemed zero. Mixed-use property must be allocated reasonably, such as by floor area. Same-jurisdiction intra-group lease elimination prevents duplicate recognition.
The machinery examples distinguish separate groups and local consolidation
A machine costs 1,200,000, depreciates by 80,000 annually and is leased for three annual payments of 100,000. At a 5% rate, the lessee’s right-of-use balances are 272,325, 181,500, 90,775 and zero; annual averages are 226,912.5, 136,137.5 and 45,387.5. The lessor and lessee belong to different MNE groups. For the lessor, the lessee is outside its constituent-entity group, so the lessor deducts undiscounted remaining-payment averages 250,000, 150,000 and 50,000, obtaining 910,000, 930,000 and 950,000. The lessee’s own recognised right-of-use value therefore does not determine this lessor calculation. A foreign lessor cannot claim the machine situated abroad. With both parties in one group and jurisdiction, consolidation instead leaves asset averages 1,160,000, 1,080,000 and 1,000,000.
Impairment and excluded UPE income reduce SBIE
Recognised impairment lowers closing eligible asset value, while a recognised reversal raises it only up to the amount that would remain without the impairment, net of normal depreciation or amortisation. Make the adjustment even if it is absent from entity-level supporting accounts. Where flow-through UPE income or deductible-dividend income is excluded under Articles 7.1 or 7.2, reduce eligible payroll and assets in the same ratio as excluded income to income before exclusion. The equivalent treatment extends to relevant other entities and allocated UPE attributes; excluding income does not leave an unreduced substance allowance.
QDMTT charges the whole amount, not only the group share
QDMTT generally applies to the full top-up amount for minority-owned entities, joint ventures and JV subsidiaries, with their separate computations maintained. A 50%-owned JV with top-up tax 100 would produce an IIR allocable share of 50, but a QDMTT amount of 100. Imposing it on the JV makes the owner indirectly bear 50. Domestic law may allocate liability to a JV member, minority subgroup member or a local main-group entity, but must avoid double charging where both joint venturers are in-scope groups. A QDMTT limited to entirely wholly owned groups must similarly exclude the relevant JV and minority categories; that option has separate safe-harbour consequences.
Blending and liability allocation are separate design choices
QDMTTs may blend at a sub-national level where taxation is imposed by that authority, or at a domestic taxable-unit level, including an individual entity. Such design can remain functionally equivalent for qualified status. Liability must be legally enforceable against at least one local constituent entity. Possible methods include joint liability, allocating to low-tax units, excess-profit ratios or wholly owned entities. These are options, not mandatory formulas, and do not bind another jurisdiction’s CFC law. If gross GloBE top-up tax 100 was allocated 70/30 and QDMTT 90 leaves 10, the remaining GloBE allocation is 7/3; QDMTT need not itself be allocated 70/30.
Stateless and flow-through entities need tailored treatment
A jurisdiction may charge a stateless flow-through entity created under its law, or a stateless PE situated there where treaty rights permit, using a separate ETR and top-up calculation; the entity remains stateless. A flow-through UPE or entity required to apply an IIR is located where created for the relevant rules, and its allocated income and taxes must enter local QDMTT computations. The jurisdiction may charge it, its owners or another local entity using an enforceable mechanism, or decline a direct charge where it is not resident. If a sole flow-through UPE’s income is not fully excluded and tax is not collected domestically, UTPR exposure can remain.
Tax-neutral and distribution regimes must be coordinated
Include equivalents of Articles 7.1 and 7.2 so qualifying flow-through or deductible-dividend income is not taxed again. Even a jurisdiction without domestic flow-through entities needs the applicable PE rule; a jurisdiction without a deductible-dividend regime need not insert an ineffective equivalent. An eligible distribution tax system in force on or before 1 July 2021 must mirror Article 7.3, including annual deemed tax and the four-year recomputation. A jurisdiction without such a system need not add that provision.
Investment entities retain their special computations and elections
A QDMTT may exclude investment and insurance investment entities, leaving possible IIR or UTPR exposure. If included, use Article 7.4 for only the MNE group’s income, taxes and SBIE share, excluding specified owner-level CFC and hybrid allocations; generally charge a local entity owner to preserve neutrality. The parent’s inclusion ratio is treated as 100% because the minority share has already been removed. Honour Article 7.5 five-year transparency elections proportionately by ownership, transferring the corresponding income and taxes to owners. Mirror Article 7.6 taxable-distribution elections, available to qualifying non-investment owners expected to face at least 15% tax, and impose top-up tax on undistributed net income after the relevant four-year distribution treatment.
Cross-border owner taxes do not reduce domestic priority
Exclude foreign parent CFC tax, main-entity tax allocated to a domestic PE, owner tax on a domestic hybrid and owner net-basis tax on distributions from the domestic entity. This preserves the domestic jurisdiction’s first taxing right and avoids circular credit calculations. Withholding tax imposed by the QDMTT jurisdiction itself on distributions from a local constituent entity is different: allocate that domestic withholding to the distributing entity.
Restart QDMTT transition attributes when GloBE begins later
If QDMTT applies before GloBE in the jurisdiction, treat the later GloBE commencement as a new QDMTT transition year. Eliminate existing excess-negative-tax carry-forwards and GloBE-loss DTAs, permit a new loss election, discard previously determined deferred-tax items and apply Article 9.1.1 again. Pre-reset DTLs not already recaptured are not subsequently subject to the recapture rule; new DTLs are. Apply Article 9.1.2 from after 30 November 2021 to the new transition, with the specified exception where QDMTT was payable under Article 4.1.5 on a tax-loss DTA. A first-in-time approach could otherwise lose valid tax attributes arising between the regimes.
Asset-transfer transition follows the disposing entity
For Article 9.1.3, examine when the seller first becomes subject to a GloBE charge on low-taxed income or a QDMTT. It is not enough that the buyer is already in scope. The rule can apply to transfers after 30 November 2021 while the seller remains outside the charge, including because it uses a safe harbour. A year using the transitional CbCR safe harbour is not the seller’s transition year for this purpose. Where the seller was already subject to GloBE or QDMTT, the under-taxed step-up concern is absent.
Initial international activity, currency and multiple parents
For the initial international-activity exclusion, a QDMTT may omit Article 9.3, apply it only where no qualified IIR owner holds a relevant interest, or adopt it without that limitation. All three can preserve QDMTT qualified status, but safe-harbour effects differ. QDMTT using group accounting uses group presentation currency. Local-standard computations use local currency if all local entities have that functional currency; otherwise a five-year election chooses local or group presentation currency for all entities. Include necessary multi-parented-group rules so ETR and top-up results remain equivalent, as well as required historical-basis and transfer-gain reorganisation rules.
Filing, definitions and disputed QDMTT amounts
A QDMTT return can differ from the GIR format but should use equivalent data points. Chapter 10 definitions and location outcomes must be incorporated except for expressly permitted QDMTT modifications. Accrued QDMTT is normally payable, but amounts challenged on constitutional, superior-law or tax-stabilisation-agreement grounds, or determined unassessable or uncollectible on those grounds, are excluded. Ordinary disputes over facts, interpretations, excluded-entity status or portfolio classification are different. For calculated QDMTT 120 disputed above a stabilised cap of 100, only 100 is payable; disputing all 120 leaves zero. Include the excluded amount for its original year only once paid and no longer contested. The source notes further guidance on four-year non-payment as future work, rather than declaring a universal final rule.
QDMTT qualified status and safe-harbour status are distinct
Qualified status comes first. Safe-harbour eligibility additionally requires an accounting standard, consistency standard and administration standard established through peer review. A filing entity elects separately for each subgroup or standalone entity with its own QDMTT computation, such as the main group, JV group and investment entity. An eligible election deems GloBE top-up tax zero without a second GloBE computation. If the amount is not payable because of the specified legal challenge or restriction, the group cannot use the safe harbour and instead uses the credit mechanism. Jurisdiction-wide recognition does not remove group-specific switch-off cases.
Local accounting for the safe harbour is conditional, not elective
Use group-standard equivalents of Articles 3.1.2 and 3.1.3, or the prescribed local-standard rule. Local accounts require all relevant local entities to use the standard and either keep or use them under corporate or tax law, or have an external audit. The standard must be acceptable, or authorised with material-distortion adjustments, and the fiscal year must match group consolidation. Otherwise revert to group-standard rules. Test JV groups separately; qualifying PE information may suffice without complete separate statements. If local conditions are met, its use is compulsory under that design, not a group choice. Domestic law must resolve competing qualifying standards through a tie-breaker.
Consistency permits only specified optional variations
The safe harbour requires all GloBE computational adjustments unless a required QDMTT difference or expressly accepted option applies. Mandatory differences include excluding cross-border allocated tax and the specified local-currency rule. Accepted optional variations are no or narrower SBIE, no or narrower de minimis exclusion and a minimum rate above 15%. Other designs need acceptance, not an assumption that qualified status guarantees the safe harbour. An entity-by-entity design may be considered only with proof of equal or greater jurisdictional outcomes. Excluding partially owned entities, omitting required Chapter 3 adjustments or excluding JV groups fails this standard in the stated examples.
Nine examples explain when the safe harbour switches off
The switch-off cases cover uncharged local flow-through entities, excluded investment entities, unrestricted Article 9.3 relief and JV liability charged to a main-group entity. Stateless flow-through entities return to their separate GloBE calculations. An uncharged flow-through UPE or IIR entity switches off the jurisdiction even if tax is allocated elsewhere locally. Unrestricted initial-activity relief switches off all relevant local entities; the other two Article 9.3 options do not. Excluded investment entities and JV groups with main-group liability switch off only the relevant subset. Exclusion of non-wholly-owned entities or JV groups, and omission of required income adjustments, instead prevent safe-harbour qualification altogether. An irrelevant distribution-tax provision may be omitted where no eligible system existed by 1 July 2021.
Administration and the two-stage review process
Ongoing monitoring must cover effective administration, information collection and reporting. A qualifying QDMTT jurisdiction may decline simplified jurisdictional GIR reporting when top-up tax arises, or when financial information and local tax compliance are already entity-based, and require separate entity adjustments. Review first determines QDMTT qualified status and then the three safe-harbour standards. The July 2023 document describes transitional and permanent review processes as work to be developed; it does not list current approved jurisdictions.
The original transitional UTPR safe harbour
The July 2023 rule deems the UTPR top-up amount for the UPE jurisdiction zero where its generally applicable nominal corporate income-tax rate on a comprehensive income base is at least 20%. Sub-national taxes count only if the combined generally applicable rate meets 20% across all relevant sub-national jurisdictions. The original period covers fiscal years no longer than 12 months beginning on or before 31 December 2025 and ending before 31 December 2026. It applies to the UPE jurisdiction, not every foreign operation, and is not an effective-tax-rate test or an IIR exemption. A group eligible for both transitional CbCR and UTPR safe harbours may choose CbCR to preserve future eligibility under its once-out-always-out rule. Later guidance must be checked separately rather than treating this original date window as the latest position.
Official source
This article independently explains the substantive contents of the official PDF, including the relevant conditions, procedures and annexes. The linked document remains the authoritative source for its original wording, and later changes should be checked separately.
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