GloBE Income Adjustments: Dividends, Currency, Insurance, Shipping and PE Allocations

What this June 2026 module covers

Part B of Module Two, Second Edition, explains adjustments to financial accounting net income or loss (FANIL) in computing GloBE income. The mandatory rules address common material permanent differences and apply to both multinational enterprise top-up tax (MTT) and domestic top-up tax (DTT). Where income is removed from GloBE income, associated covered taxes generally also need to be removed from adjusted covered taxes.

The module covers net tax expense, acquisition accounting, dividends and equity interests, revaluations, currency differences, prohibited expenses, accounting changes, pensions, related-party transactions, insurers, financing, regulatory capital, shipping and allocations involving permanent establishments (PEs) and flow-through entities (FTEs). It lists transfers of controlling interests, assets and liabilities and the income treatment of qualifying refundable and marketable transferable tax credits, but does not develop those topics here. Separate modules and the legislation are needed for those rules. The presentation is explanatory material rather than an exhaustive answer to every tax issue.

Restore income before net tax expense

Regulation 11 adds net tax expense to FANIL. The categories include covered taxes even where the underlying income is excluded, MTT or a qualified income inclusion rule, DTT or a qualified domestic minimum top-up tax, a qualified undertaxed profits rule, and disqualified refundable imputation tax. The list also includes a life insurer’s tax on amounts accruing to or paid to policyholders.

Adding back these accounting tax expenses establishes the income base; it does not mean that every added-back tax qualifies for the adjusted-covered-tax numerator. The two calculations must be reconciled separately.

Remove purchase accounting adjustments

A share acquisition adjustment is a purchase accounting adjustment in the ultimate parent entity’s consolidated financial statements for an acquired business. Regulation 12 removes it from the constituent entity’s (CE’s) FANIL.

An exception applies to ownership interests acquired before 1 December 2021 where the group’s CEs lack sufficient records to identify the adjustment with reasonable accuracy. This is a records-based exception for the specified older acquisitions, not a general permission to retain all historic purchase accounting adjustments.

Which dividends are excluded

Dividends or distributions received or accrued on a direct ownership interest are generally excluded. Two important exceptions are a short-term portfolio shareholding and a direct interest in an investment entity or insurance investment entity covered by the Regulation 64 election.

A portfolio interest carries less than 10% of the relevant profits, capital, reserves or voting rights for the MNE group. It is short-term when held for less than one year at the distribution date. Only when both conditions are present does this short-term-portfolio exception require the dividend to remain in GloBE income; an interest meeting only one condition is not excluded from the dividend exclusion on that ground.

The dividend exclusion also does not apply to a distribution that another CE treats as an expense in its FANIL, a payment on a debt interest, or additional tier one capital distributions.

Elect to include portfolio dividends

A group can elect for a CE to stop excluding dividends from portfolio shareholdings. The election covers all portfolio dividends of that CE, rather than selected receipts. It is locked for the election year and the next four financial years (FYs). After revocation, another election for that CE cannot be made in Singapore or another jurisdiction for the revocation year and the next four FYs.

Equity gains, losses and impairment

Regulation 14 normally removes fair-value movements and impairments on direct equity interests other than portfolio shareholdings, profits or losses recognised under the equity method, and disposal gains or losses other than portfolio disposals. Portfolio status for fair-value movements is assessed at the FY end; for disposals, immediately before disposal.

An excluded gain reduces FANIL. An excluded loss or impairment is added back. That direction matters: an excluded loss cannot remain as a deduction while the corresponding type of gain is removed.

Jurisdiction-wide equity inclusion election

Under Regulation 34, the filing entity can elect in the GloBE Information Return (GIR) to include specified excluded equity gains and losses for every CE in the jurisdiction. The eligible categories concern taxable fair-value movements or impairment, including taxation on realisation; taxable equity-method results; and taxable disposal gains or losses. A qualified ownership interest under Regulation 42(5) is outside this election and must not be included as income on that basis.

The election cannot be revoked in its first FY or the next four FYs. A revocation in FY 6 blocks a fresh election in FY 6–FY 10. There is a further restriction: if a loss that otherwise qualified for equity exclusion was included during the election, the election cannot be revoked.

Bring specified PPE revaluations into income

Regulation 15 addresses an accounting method that periodically revalues property, plant and equipment to fair value, records the movement in other comprehensive income, and never subsequently recycles it through profit or loss. The pre-tax revaluation gain is added to FANIL and a loss is deducted. This is relevant to the revaluation model, rather than the cost model, and prevents the specified movement from escaping GloBE income merely because it bypasses the profit-and-loss account.

Three asymmetric currency adjustments

Accounting currency is the functional currency used for the CE’s accounts; tax currency is the currency used to determine its covered-tax profit. A third currency is neither. The rule matters when accounting and tax currencies differ.

For an accounting-currency/tax-currency exchange movement reflected differently in taxable income and FANIL, align FANIL with its tax treatment. For an accounting-currency/third-currency movement reflected differently in those two calculations, remove the gain or loss from FANIL. For a tax-currency/third-currency movement reflected differently in FANIL, ensure the movement is fully reflected in FANIL whether or not it appears in taxable income. The three instructions are different and should not be replaced by a single blanket removal of foreign-exchange differences.

Illegal payments and material penalties

Illegal payments, such as bribes or kickbacks, are removed as expenses where they constitute an offence under the law of the CE’s or ultimate parent’s jurisdiction. Fines or penalties are removed where they reach at least EUR 50,000. Multiple penalties for the same conduct or continuing conduct must be aggregated for the threshold. Removing an expense means adding it back to FANIL; the threshold is not an allowance to deduct the first EUR 50,000 of a larger penalty.

Opening-balance accounting changes

A change in opening net assets and liabilities is included in the FY’s FANIL when attributable to an accounting-policy change affecting GloBE income or expense for any FY, or correction of an error reflected in a previous FY’s GloBE income or loss. The error-correction rule excludes the extent already producing the Regulation 40(2) post-filing adjustment for a decrease in adjusted covered taxes. Identify the cause of the opening-balance change and coordinate the income and tax corrections to avoid duplication.

Replace pension accruals with fund cash flows

The pension adjustment applies when a CE contributes to a pension fund, receives money from it, or has related income or expense in FANIL. Deduct A + B − C from FANIL: A is the accrued pension-fund income (positive) or expense (negative) recorded for the FY; B is contributions paid to the fund; C is amounts received from it.

For example, an accrued expense of 100 gives A = −100. If contributions are 80 and receipts are zero, A + B − C = −20; deducting that negative amount adds back 20 and leaves a net expense of 80. The sign convention is essential to applying the formula correctly.

Related-party transactions must reconcile

The arm’s-length condition asks what independent parties outside the same MNE group would agree in comparable circumstances. For a relevant cross-jurisdiction transaction that is not arm’s length or is recorded at different amounts by the CEs, adjust the financial outcome to the same amount for both parties and to an arm’s-length outcome.

For a sale or transfer of assets between CEs in the same jurisdiction, the slide identifies an adjustment where the transaction creates a loss in FANIL and is not arm’s length. This domestic-loss condition is distinct from the broader cross-jurisdiction rule.

Life-insurer taxes passed to policyholders

A life insurer adjusts returns to policyholders that correspond to changes in its policyholder liability and removes amounts charged to policyholders for tax on their accruing or paid returns. The latter exclusion has an exception where the insurer already records the tax as an expense other than the Regulation 11(f) tax-expense item, such as an above-the-line expense.

When both the policyholder charge and tax expense sit above the tax line, they offset in profit before tax. If the charge is income but the tax is below the line, leaving both unadjusted increases GloBE income and covered taxes and can shelter other low-taxed profits. Regulation 22 corrects that mismatch; it is not simply an instruction to remove every insurance receipt.

Insurance reserves matching excluded equity returns

An insurer may hold equities for policyholders and owe them the investment earnings after a management fee. Dividends or equity movements can be excluded from GloBE income while the matching increase in policyholder liabilities remains a deductible expense. That combination distorts the effective tax rate.

Where an insurance-reserve expense is economically matched by an excluded dividend or excluded equity gain or loss on a security held for a policyholder, Regulation 22 removes the reserve expense from FANIL. Match the expense to the excluded investment return rather than excluding all reserve movements indiscriminately.

Intra-group financing mismatches

The presentation describes arrangements where a high-tax CE directly or indirectly provides credit or investment to a low-tax CE, creating expenses for the latter without a corresponding increase in taxable income for the former. Regulation 23 removes the low-tax CE’s expense in respect of the relevant intra-group financing arrangement.

An indirect arrangement can use an intermediary and back-to-back loans. Trace the complete financing chain and the corresponding income treatment; the module does not state that every ordinary intercompany loan automatically requires expense exclusion.

Additional tier one capital distributions

Additional tier one capital is issued under banking or insurance regulatory requirements, converts to equity or is written down on a specified trigger, and has features designed to absorb losses in a financial crisis. It may be equity in the accounts but debt for tax.

Where an issuer records a distribution as a decrease in equity without reflecting it in FANIL, Regulation 24 brings that amount into FANIL as an expense. A distribution received or receivable that increases the recipient’s equity without entering FANIL is brought into FANIL as income. Do not treat the recipient’s distribution as an excluded dividend.

Qualifying international shipping activities

International shipping transports passengers or cargo by ship, excluding a ship operating solely within one jurisdiction and excluding towing or dredging. Qualifying activities include carriage alone or jointly; fully equipped, crewed and supplied ship leasing; bareboat leasing to another CE for international shipping; slot chartering; and sale of a ship held for the CE’s use for at least one year.

The income exclusion requires the ship’s strategic or commercial management to be effectively carried on within the CE’s jurisdiction for the FY. Shipping cargo from Port X in one jurisdiction to Port Y in another qualifies. Subsequent land transport from Port Y to the customer does not become shipping income or ancillary shipping income merely because it follows the international voyage.

Ancillary activities and cost allocation

Ancillary activities include bareboat leasing for no more than three years to a shipping enterprise outside the same group; ticket sales for another shipping enterprise’s domestic leg of an international voyage; leasing or temporarily storing international-shipping containers; engineering, maintenance, cargo handling, catering and customer-relations services for shipping enterprises; and investment activity integral to international shipping operations.

Compute both shipping and ancillary income as net results after direct costs and the relevant share of indirect costs. The presentation allocates indirect costs by the relevant activity’s revenue divided by total revenue. Its example has total revenue 120, total direct costs 45 and indirect costs 20. Shipping revenue is 100 with direct costs 40; its indirect share is 100/120 × 20 = 16.6667, displayed as 17, giving shipping income displayed as 43. The 45 direct cost is the overall total, not the shipping-only direct cost.

The ancillary-income cap and losses

Qualifying international-shipping income and losses are excluded. An ancillary loss is also removed, but positive ancillary income is excluded only up to the specified amount. The group’s jurisdictional cap is 50% of the sum of international-shipping income of all its CEs there, or zero if that sum is zero or negative.

For each CE, the positive ancillary exclusion is A × B/C. A is the smaller of total positive ancillary income C and the jurisdictional cap; B is that CE’s positive ancillary income, otherwise zero. C sums only positive ancillary amounts. Ancillary losses are not netted into C. This distinction prevents a loss-making CE from changing how the positive exclusion is allocated.

Reconcile the five-entity shipping example

In Jurisdiction X, CE 1, CE 2 and CE 3 have shipping income 100, 20 and −20, and ancillary income 50, 30 and −10. Shipping income totals 100, so the cap is 50. Positive ancillary income totals 80, even though net ancillary income is 70. CE 1 excludes 50 × 50/80 = 31.25 and CE 2 excludes 50 × 30/80 = 18.75, displayed as 31 and 19. CE 3’s ancillary loss of 10 is added back.

Using the slides’ rounded presentation and FANIL of 150, 50 and −30, GloBE income is 19, 11 and zero: 150−100−31; 50−20−19; and −30+20+10. Exact unrounded first and second results are 18.75 and 11.25. In Jurisdiction Y, shipping amounts 80 and 50 total 130, giving a cap of 65; positive ancillary amounts 10 and 20 total 30, so both can be excluded in full. The example’s rounded integers should not replace the allocation formula in an actual computation.

PE income, PE losses and later recovery

Regulation 26 normally removes the PE’s FANIL from the main entity’s FANIL. Regulation 27 makes a loss exception where the PE’s adjusted FANIL is negative, the main entity’s jurisdiction treats the loss as its tax expense, and the loss is not offset against income taxable in both the main-entity and PE jurisdictions. That loss is allocated to the main entity.

If a PE loss of Amount A was allocated in FY 1 and PE income becomes positive in FY 2, the presentation allocates PE income corresponding to that previously allocated amount back to the main entity. Maintain a record of the loss allocation and later recovery; the slides explain the principle rather than every multi-year limitation and ordering detail.

Adjust income allocated from flow-through entities

Where FTE income is allocated to a CE-owner, Regulation 28 requires the allocated FANIL to be adjusted as if it were the CE-owner’s own FANIL. The slide illustrates FTE Z with FANIL 100, only part of which is allocated to CE X; it does not say that X automatically receives the whole 100.

Keep the ownership allocation separate from the subsequent income adjustments. Supporting workpapers should show the accounting starting amount, each applicable adjustment, associated covered-tax treatment, election scope and lock-in dates, and the final jurisdictional allocation. Retain the original PDF for its slide references and read the relevant legislation and connected modules for topics only signposted here.