Accounting income is the starting point, not taxable income
IRAS’s June 2026 Second Edition of Module 2A covers 36 pages on the starting financial accounting net income or loss, or FANIL, its allocation and the currency rules. The wider module also addresses mandatory and optional adjustments; this part provides their overview, with the detailed treatments developed in the other parts.
GloBE income or loss is a standardised accounting-based amount, not simply the local taxable profit. The Singapore comparison illustrates capital gains or losses included in GloBE income even where not taxable locally, dividends generally excluded except short-term portfolio dividends, and unremitted foreign income included even where it is not in Singapore taxable income. Singapore one-tier exempt dividends and qualifying exempt foreign dividends have their own local treatment. Classification and the relevant GloBE adjustments remain necessary; the comparison is not a rule that every receipt is taxable in both systems.
The two-stage computation and the adjustment map
First establish each constituent entity’s FANIL, including any allocated FANIL of a flow-through entity. Then make required or permitted adjustments, including reallocations to or from other entities, to obtain its GloBE income or loss. The jurisdictional aggregate feeds the effective-tax and excess-profit computations.
The mandatory map includes net tax expense, share-acquisition adjustments, excluded dividends and equity gains or losses, revaluation gains or losses, asymmetric foreign exchange, illegal payments and fines, accounting-policy changes, pension accruals, arm’s-length treatment, insurers, intragroup financing, additional Tier One capital, shipping exclusions, PE and flow-through allocations, controlling-interest transfers, asset and liability transfers, and income treatment for QRTCs and MTTCs. Optional topics include elections for dividends and equity gains, distressed companies, realisation, stock-based compensation, five-year gain recognition, intragroup transactions, foreign-exchange hedges and tax fair-value adjustments. The list is a navigation map, not a blanket entitlement to exclude each item.
Ordinary constituent entities and the alternative accounts route
For an entity that is not a PE, the primary FANIL is its net income or loss determined when preparing the UPE’s consolidated financial statements, before consolidation adjustments that eliminate intragroup transactions. It is not the group’s post-elimination profit attributed informally to the entity.
If that amount cannot reasonably practicably be determined, the entity may use its own accounts under an acceptable or authorised accounting standard only where it actually prepares accounts under that standard, the information is reliable, and permanent differences exceeding EUR1 million between its standard and the UPE’s standard are eliminated. The acquisition of an entity historically using different standards illustrates impracticability, not an automatic exemption for every acquired business.
Different financial year ends and DTT local accounts
Where the CE’s results are included in the UPE’s consolidated accounts, use the period and method actually consolidated. For a UPE year ending 31 December 2026, this could be the CE year ending 30 November 2026, or a combination of eleven months from that year and one month from the CE year ending 30 November 2027. Where the CE’s FANIL is not included, the slide uses the CE financial year ending within the UPE’s financial year.
For Singapore DTT, the local-accounts rule applies where all Singapore CEs share the UPE’s financial year end and prepare local-standard statements because Singapore law requires them or an external auditor audits them. The relevant standards are SFRS(I), SFRS and SFRS for Small Entities. If the conditions are not met, determine FANIL using the ordinary UPE-consolidation route, subject to its impracticability alternative. This local-accounts rule is separate from the additional functional-currency condition for mandatory SGD calculations.
Permanent establishments and the exemption example
A PE’s FANIL generally comes from its separate accounts under the specified authorised standard. Without separate accounts, determine the main entity’s net income or loss attributable to the PE using the applicable tax treaty. If there is no treaty and the PE is subject to an income-like tax, use the host jurisdiction’s law; if there is neither a treaty nor such taxation, use Article 7 of the OECD Model Tax Convention.
The example attributes business profit of 100 to a treaty PE in jurisdiction B, with no deductible expense. Although B exempts 50% of that income, the PE’s FANIL remains 100. The main entity in jurisdiction A adjusts its FANIL so that the PE’s FANIL is not counted again. A local exemption does not reduce the underlying accounting amount to 50.
The stateless-PE diagram and income measure
The diagram describes an actual or deemed place of business under the main entity jurisdiction’s law, through which operations are carried on outside that jurisdiction, where the main jurisdiction exempts the income attributable to those operations. Under the cited stateless-PE provisions, the FANIL is that exempt income after deducting the relevant expenses, provided those expenses are not deductible in the main entity’s jurisdiction.
The visual diagram is important because several definition boxes are missing from the plain-text extraction. A foreign activity or tax exemption alone is not sufficient to identify this category; the place-of-business and operation conditions and statutory PE/location rules must also be applied.
Flow-through entities and the additional statutory category
An FTE is an entity to the extent it is fiscally transparent for income, expenditure, profit or loss in its creation jurisdiction, except where it is tax-resident and its income or profit is subject to covered tax in another jurisdiction. Section 3(1A) adds a category for an entity with no tax residence anywhere and no relevant DTT, covered tax or QDMTT in its creation jurisdiction, to the extent it is transparent for amounts attributable to an owner, has no place of business where created and the amounts are not attributable to a PE.
Slide 19 places the no-residence and no-tax conditions beside an exclusion-style icon, which can reverse the meaning if read literally. The official consolidated Act’s section 3(1A) confirms that these are conditions of the additional category, not grounds excluding an otherwise qualifying entity. The relevant conditions should be read from the [consolidated Act](https://sso.agc.gov.sg/Act/MEMTA2024).
Reference entities and reverse-hybrid classification
A reference entity normally is a CE-owner that is not itself an FTE and holds the interest directly or through one or more FTEs. The diagrams show that owner acting as the reference for a directly held FTE and for one beneath an intermediate FTE. If no CE meets the reference-entity rule, the UPE is the reference entity even if it is itself an FTE.
An FTE is tax transparent with respect to the amounts attributable to its reference entity where that entity’s jurisdiction treats the FTE and every intervening FTE as fiscally transparent. It is reverse hybrid with respect to those amounts if the reference jurisdiction regards the FTE or any intervening FTE as non-transparent. Classification therefore can vary with the reference entity and the holding chain; it is not determined solely by the legal form where the entity is registered.
Allocation order and the complete limited-partnership example
For an ordinary non-UPE FTE, first exclude the FANIL attributable to an owner outside the group, then allocate remaining FANIL attributable to a PE to that PE. Next allocate the remainder to the reference entity to the extent its jurisdiction treats the FTE and each intervening entity as transparent. Any amount not allocated in that step remains allocated to the FTE under the reverse-hybrid treatment.
The Singapore LP example has FANIL 100 and owners A, B and C with 10%, 60% and 30%. A is outside the group, so 10 is excluded. B is a non-FTE CE-owner whose jurisdiction treats the LP as transparent, so 60 is allocated to B. C is also a non-FTE CE-owner, but its jurisdiction does not treat the LP as transparent; 30 remains allocated to the Singapore LP as reverse-hybrid income and is subject to DTT under the example. All three outcomes depend on the stated ownership and jurisdictional facts.
FTE UPEs and the limits of this part
Where an FTE is held by an FTE UPE directly or through other FTEs, follow the ordinary allocation sequence except that the first exclusion for non-group owners does not apply to the relevant portion. Treating every FTE as an ordinary non-UPE entity would therefore incorrectly remove income.
Special rules also apply to an FTE UPE, its PE, and a PE of another FTE that is transparent in the UPE’s jurisdiction and held directly or solely through FTEs. This part identifies these categories and cites paragraphs 6(12) and 6(12A) of the First Schedule, but does not spell out every special-rule computation. The detailed rule should be read from the cited provisions rather than invented from the ordinary allocation example.
Presentation currency and the applicable conversion standard
FANIL and MMT calculations generally use the currency of the UPE’s consolidated financial statements for the relevant year. If no such statements exist, use the currency in which they would have been prepared if required under the applicable authorised accounting standard. This is the presentation currency, which is distinct from each entity’s functional currency.
An amount in another currency is converted under the applicable accounting-standard rules, including applicable hyperinflation guidance, even if that standard would not otherwise require conversion of that amount. If FANIL comes from UPE consolidation, use the UPE consolidated-accounts standard. If it comes from the permitted alternative entity accounts, use the acceptable or authorised standard used for those accounts. A convenient spot rate is not an automatic substitute for these rules.
DTT currency conditions and the five-year election cycle
Use SGD for DTT where all Singapore CEs share the UPE’s year end, prepare qualifying local-standard accounts required by Singapore law or externally audited, and use SGD as functional currency. The rule also applies to a standalone JV or JV-group entities located in Singapore. Where any Singapore CE does not use SGD as functional currency, an election can choose either SGD or the UPE’s presentation currency, with functional-currency amounts converted under local accounting rules.
The choice cannot be revoked in the election year or the following four years. An election made in FY1 remains in place through FY5. If revoked in FY6, no new election is permitted in FY6 or the following four years, FY7–FY10. The binding and re-election restrictions should be tracked separately; a revocation does not permit immediate selection of another currency.
EUR thresholds and the exchange-rate hierarchy
The MMT Act’s thresholds are denominated in EUR. Where the presentation currency is not EUR, convert the amount using the average daily exchange rate for December of the calendar year immediately preceding the relevant fiscal year. Use the ECB daily-rate average first; if unavailable, use the MAS daily-rate average; if both are unavailable, use the daily-rate average of the institution managing the presentation currency.
Where the underlying amount is not already in presentation currency, first convert it into that currency under the applicable accounting standard, then convert to EUR using the specified December rate. This two-stage threshold method is distinct from ordinary accounting conversion and from the DTT currency election. Keeping the period, source and sequence with the calculation makes the threshold result reproducible.
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.
Read the official PDF ↗