GloBE Elections: Debt Release, Realisation, Stock Compensation and Five-Year Allocations

Elective adjustments have different scopes

The June 2026 Second Edition of Module 2C explains elections affecting financial accounting net income or loss (FANIL) for both MTT and DTT. It covers distressed-company debt release, realisation accounting, stock-based compensation, local tangible-asset gains, tax-consolidated transactions, currency hedges and tax fair-value resets. Elections to include otherwise excluded dividends and equity gains are listed but developed in Module 2B, rather than repeated here.

Most elections are made by the filing entity in the GloBE Information Return (GIR), but their scope differs: some cover every constituent entity (CE) in a jurisdiction, some a specified tax consolidation group, and others a particular CE or event. A five-year lock-in for one election does not make every election a five-year election. Record the legal basis, elected entities, assets, start year, adjustments and revocation conditions individually.

Distressed-company debt release

Regulation 29 concerns a CE released from debt where the release produces income in FANIL. The presentation identifies insolvency, bankruptcy or similar proceedings; a third-party creditor and debtor obtaining an independent expert opinion that payments due in the next twelve months cannot be met; and third-party release where liabilities exceed assets’ fair market value at the release date.

For the proceedings or expert-opinion route, remove debt-release income under an arrangement with an unconnected creditor, and connected-creditor release only where it forms part of that unconnected-creditor arrangement. For the balance-sheet distress route, the deduction is the smallest of release income, the pre-release excess of liabilities over asset fair value, and the tax attributes reduced by the release. The slide’s introductory list joins its last item with “and”, but the following slide explicitly distinguishes releases under (i) or (ii) from those under (iii); use the legislation for eligibility rather than treating the list as one cumulative three-part test.

Realisation election and carrying values

Regulation 30 allows realisation treatment for assets and liabilities, or tangible assets only, otherwise subject to fair-value or impairment accounting. Scope can be all group CEs in a jurisdiction or its investment-entity CEs. Exclude fair-value and impairment movements while the election applies and recognise gain or loss on disposal using the carrying value at the later of election commencement and acquisition of the asset or incurrence of the liability.

The example buys shares for 100 in FY 1, records a fair-value loss of 20 in FY 2 and sells for 200 in FY 3. Under the election, remove the FY 2 loss and recognise disposal gain 100 in FY 3, using the original 100 rather than the impaired carrying value. This illustrates the timing election, not a waiver of other applicable equity-income rules.

Realisation revocation brings a catch-up amount

The realisation election is locked for its initial FY and the next four FYs. Revoking in FY 6 bars another election for FY 6–FY 10. In the first year without the election, include the aggregate difference between each still-held item’s fair value on that FY’s first day and its election carrying basis. The basis is the later-of-commencement-or-acquisition/incurrence value described above. A positive or negative catch-up must be reflected as income or loss; ending the election does not simply erase deferred movements.

Use tax deductions for stock compensation

Regulation 31 replaces the financial-accounting stock-compensation expense with the tax deduction for all group CEs in the elected jurisdiction. If an option expires unexercised during an election year, prior GloBE deductions for that compensation are treated as income in the expiry year.

At commencement, if pre-election compensation expenses already taken into GloBE income exceed the tax deductions for that compensation, include the excess as income in the first election FY. This transition adjustment is additional to replacing the current accounting expense with the current tax deduction.

Stock-compensation lock-in and revocation

The election lasts at least the initial FY and four following FYs. After revocation, no new election is allowed in the revocation FY or the next four. Where compensation recognised under the election has not been paid, for example an unexercised option, include in the first non-election year the excess of total expense recognised under the election over the amount that would have been recognised without it. Keep award-level histories so the comparison concerns the same compensation, rather than unrelated annual payroll totals.

The stock-compensation numerical example

Before the FY 3 election, accounting expenses are 250 in each of FY 1 and FY 2, while tax deductions are 50 in each year: 500−100 = 400 transition income in FY 3. FY 3 accounting expense 50 is replaced by tax deduction 100, producing a separate −50 adjustment.

The FY 4–FY 7 column is an aggregate: accounting expense 200 and tax deductions 250 produce another −50 adjustment. It is not 200 or 250 in each of four years. On FY 8 revocation, assuming no options exercised, election-period deductions 100+250 = 350 exceed the no-election accounting amount 50+200 = 250, giving income 100. FY 8 accounting expense is 250 and tax deduction 10, but once revoked the ordinary accounting basis applies; the table does not substitute that 10. Physical pages 17–23 repeat the same teaching table with highlighted stages, rather than providing seven additional cases.

Five-year gains election is a carry-back mechanism

Regulation 32 is an annual election for net gains from local tangible-asset disposal, excluding transfers between members of the same MNE group. Here a local tangible asset is immovable property in the disposing CE’s jurisdiction, not every piece of movable equipment.

The five-year period consists of the election year and the preceding four FYs. A loss year requires at least one CE with a disposal net loss and total disposal net losses exceeding total disposal net gains in the jurisdiction. First allocate the current relevant net gain to loss-making CEs in the earliest loss year, then subsequent loss years until losses are covered or the gain runs out. Only after that step is any remainder split evenly over the five-year period.

Sufficient and insufficient gain examples

Example 1 has FY 2 losses of 100 and 200 for CE 2 and CE 3, and FY 5 gain 300 for CE 1. Allocate 100 and 200 back to the two FY 2 entities, removing the FY 5 gain and recalculating FY 2 GloBE income, ETR and top-up tax.

Example 2 has losses 150 and 200 but only gain 300. Allocate in proportion to losses: 150/350×300 = 128.5714 and 200/350×300 = 171.4286, displayed as 129 and 171. Total remaining FY 2 loss is 50. The rounded display amounts are explanatory; actual computations should retain the applicable precision.

Allocate residual gains by election-year gains

After losses are dealt with, allocate 20% of the remainder to each of the five FYs. In each FY, distribute that amount among CEs with disposal net gains in the election year in proportion to those gains. If no CE has a net gain in the election year, the slide provides equal allocation among all CEs in the jurisdiction.

Example 3 has FY 2 losses 150 and 50 for CE 2 and CE 3; CE 1 and CE 2 each gain 150 in FY 5. The first step allocates 200 to the old losses, leaving 100. Allocate 20 to each FY, then 10 each to CE 1 and CE 2 in each FY based on their equal FY 5 gains. The recipient of the residual allocation need not be the entity that suffered the historic loss.

Eliminate transactions only within the elected tax group

Regulation 33 applies ultimate-parent consolidated accounting to eliminate income, expense, gains and losses between group CEs in the same jurisdiction that form a tax consolidation group. Such a group exists where domestic law permits amounts to be aggregated, shared or transferred because of the connection between its entities; accounting consolidation alone is not the stated eligibility test.

Adjust the first election year to avoid omitted or duplicated items, then perform the specified eliminations for every effective FY. The initial year and next four years are locked. Revocation requires another no-duplication/no-omission adjustment and bars a fresh election for that year and the next four.

Foreign-currency net-investment hedges

Regulation 35 allows a CE-specific election to remove specified currency gains or losses. The instrument must hedge a non-portfolio ownership interest, its gain or loss must be recorded in other comprehensive income in the parent’s consolidated statements, and it must be an effective net-investment hedge under the authorised accounting standard.

If the CE holds the instrument, its economic and accounting effects must not be transferred to another entity. If someone else holds it, those effects must be transferred to the CE making the adjustment. The election is locked for its first year and four following years, with an equivalent five-year no-re-election period after revocation. Ordinary operating currency hedges do not automatically meet these conditions.

A tax fair-value reset changes future basis

Regulation 36 applies where a CE is required or permitted to reset assets or liabilities to fair value for tax purposes, excluding transfer-pricing adjustments and trading-stock sales. The election makes a FANIL adjustment for each relevant item and establishes the fair value immediately after the triggering event as its basis for the election FY and future FYs.

The adjustment amount is post-event fair value minus pre-event carrying value, less a non-qualifying gain or plus a non-qualifying loss under Regulation 61(9). It can all enter FANIL in the tax-adjustment year or be split into five equal amounts for that year and the following four. This forward spread differs from Regulation 32’s current-and-prior-year carry-back.

Leaving the group accelerates the balance

The fair-value example resets an amount of 500 in FY 1 and elects five equal amounts. If the CE remains in the group, 100 enters FANIL in each of FY 1–FY 5. If it ceases to be a CE in FY 3, FY 1 and FY 2 each contain 100 and the remaining 300 enters FY 3, rather than continuing instalments outside the group.

Retain valuation dates, pre-event book values, tax-reset evidence, non-qualifying gain or loss calculations and group-membership dates. The source is a June 2026 training module with a general-information disclaimer; consult the connected rules where its slides do not develop a qualification or exception.