Article 1.1.1

4. Article 1.1.1 has two main elements:

a. The first element restricts the operation of the GloBE Rules to the Constituent Entities of an MNE Group. The meaning of MNE Group and Constituent Entity is discussed further in the Commentary to Article 1.2 and Article 1.3.

b. The second element is a revenue threshold based on that used in the CbCR rules. This threshold limits the application of the rules to those MNE Groups with consolidated revenue of at least EUR 750 million in at least two of the four preceding Fiscal Years. The operation of this revenue threshold is discussed further below.

5. The consolidated revenue threshold reflects cost / benefit considerations within the context of the overall tax policy rationale of the GloBE Rules. By restricting the rules to those MNE Groups that meet the requirements of Article 1.1, the compliance and administration costs of adopting a co-ordinated global minimum tax are minimised, while preserving the overall impact and revenue benefits. Using the same monetary threshold as that used for CbCR purposes also limits the incremental compliance costs associated with the introduction of the GloBE Rules and will make it easier for tax administrations to monitor compliance with the rules based on existing information collection and exchange systems.

6. The consolidated revenue threshold applies to the revenue that is reported in the Consolidated Financial Statements of the MNE Group. The threshold uses a two-out-of-four-years test in order to reduce volatility in the application of the rules. Where the MNE Group has EUR 750 million or more of reported revenue in at least two Fiscal Years in the four-year period immediately preceding the tested Fiscal Year, the Constituent Entities that make up the MNE Group will be within the scope of the GloBE Rules. Note that consolidated revenue for the current year (i.e. the tested Fiscal Year) is not factored into the four year calculation. Excluding the current year’s results from the revenue threshold test ensures that an MNE Group knows, at the beginning of the tested Fiscal Year, whether it will be subject to the GloBE Rules in that year.

7. In a limited number of cases, Consolidated Financial Statements may not be available in respect of the four Fiscal Years immediately preceding the tested Fiscal Year. This could happen because the Entities that make-up the Group may have been recently created, so that there are no financial statements for Entities in any prior year or because, prior to the tested Fiscal Year, the Entities forming the Group were standalone Entities that are not required to consolidate. Article 6.1.1(b) deals with the latter situation. Where an Entity is brought under common control with another Entity to form a Group, the consolidated revenue threshold for a prior year is met if the sum of the revenues in the financial statements of each Entity is equal or greater than EUR 750 million (see Commentary on Article 6.1.1(b)).

8. In those cases where the Entities forming the Group were recently created such that there are no financial statements for the Group in prior years, then the third year is the first year in which the GloBE Rules can apply, since, at that point, there will be two prior years to test. If the revenue threshold is met for the two prior years, the Group will be within the scope of the GloBE Rules in year three notwithstanding that the Group does not have four prior years of consolidated financial statements. 9. For instance, in Year 1, A Co and B Co are incorporated and form the AB Group. Consolidated financial statements are prepared for the AB Group. In Years 1 and 2, the AB Group has consolidated revenue of EUR 750 million. In this case, the AB Group is not within the scope of the GloBE Rules in Years 1 and 2 because Article 1.1.1 requires the AB Group to have consolidated revenues of EUR 750 million or more in at least two of the four Fiscal Years preceding the tested Fiscal Year. In Year 3, the consolidated revenue threshold has been met because in the consolidated revenue of the AB Group equals EUR 750 million two Fiscal Years preceding the tested Fiscal Year (Year 3).

Revenue threshold applies to the consolidated revenue

10. The revenue threshold takes into account the consolidated revenue as reported in the Consolidated Financial Statements of the Group. The definition of Consolidated Financial Statements in Article 10.1 includes a requirement that these statements are prepared in accordance with an Acceptable Financial Accounting Standard and a deeming provision to address those situations where the MNE Group is only a single Entity with foreign branch operations or does not otherwise prepare Consolidated Financial Statements under such a standard.

11. Where the income of an Entity is consolidated with that of an MNE Group, then the threshold in Article 1.1.1 is applied to the total amount of the Entity’s revenue that is reflected in the Consolidated Financial Statements of the Group, even if a portion of the interests in that Group Entity is owned (directly or indirectly) by minority interest holders. In accounting terms, this means that the revenues taken into account in the determination of the MNE Group’s total revenue under the consolidated revenue threshold should be the one reflected in the Consolidated Financial Statements and should not be reduced by the amount attributable to minority interest holders. The threshold applies based on the consolidated revenue of the MNE Group, not the aggregate of the revenues of each Group Entity. In other words, revenues from transactions with other Group Entities that are eliminated in the consolidation process are excluded from the revenue threshold test.

12. Although, as described in further detail below in the Commentary to Article 1.1.3 and Article 1.5, an Excluded Entity is not a Constituent Entity (and is, therefore, not subject to the GloBE Rules), an Excluded Entity will qualify as a Group Entity for purposes of determining the revenue threshold to the extent its income is consolidated with the rest of the Group. In this case, the revenue of that Excluded Entity must be taken into account in applying the consolidated revenue threshold. This ensures consistency with the threshold for reporting under CbCR and avoids requiring additional rules to address the treatment of revenues attributable to transactions between the Excluded Entity and the rest of the Group (including anti-avoidance rules to protect against fragmentation).

13. (changed in july AAG) In cases where the revenue threshold in a jurisdiction’s domestic law is set in a currency other than the Euro and the revenue threshold is revised on a yearly basis, the applicable revenue threshold for the Fiscal Year is the last revenue threshold in effect as of the beginning of the Fiscal Year. As discussed in paragraphs 19.1 through 19.2, jurisdictions will be required to re-base non-EUR denominated thresholds annually, based on the average exchange rate of the December of the previous calendar year. For example, Country A rebases its revenue threshold in local currency in January of each year based on the average rate of the December of the previous calendar year, effective for Fiscal Years beginning on or after 1 January. The MNE Group has a Fiscal Year that starts on 1 July 2024 and ends on 30 June 2025. The MNE Group applies the revenue threshold that is in effect on 1 July 2024.

13.1 At the end of the Fiscal Year commencing 1 July 2024, the MNE Group will need to determine whether it meets the relevant GloBE monetary thresholds in the jurisdiction. If the presentation currency of the MNE Group’s Consolidated Financial Statements differs from the currency in which the GloBE monetary thresholds are expressed in the jurisdiction’s domestic law, the MNE Group will be required to translate the amount from the presentation currency to the currency prescribed in the jurisdiction’s domestic law based on the average exchange rate of the December month of the calendar year immediately preceding the start of the MNE Group’s Fiscal Year. Following the example in paragraph 13 above, for the Fiscal Year commencing 1 July 2024, the MNE Group would use the average exchange rate for December 2023 in translating its revenue to local currency to apply the relevant threshold.

Article 1.1.2

14. Article 1.1.2 addresses cases where a Fiscal Year of an MNE Group is a period other than 12 months. The Fiscal Year of the MNE Group is defined in Article 10.1 and is determined by reference to the annual accounting period of the UPE. The definition of Fiscal Year aligns with the test used in CbCR and ensures consistency in the application of the threshold for GloBE and CbCR purposes.

15. The rule in Article 1.1.2 applies in cases where one or more of the immediately preceding Fiscal Years use a period other than 12 months. This paragraph states that the EUR 750 million revenue threshold has to be recalculated on a proportional basis to reflect the threshold for a period other than 12 months. There are a number of ways that this recalculation can be made. For example, if the Fiscal Year of the MNE Group is comprised of 9 months, then the local tax authority could require the revenue threshold to be correspondingly reduced by a quarter to capture a proportionate amount of revenue over a 9-month period EUR 562.5 million (EUR 750 million/12 x 9). In order to reach the same outcome the group’s consolidated revenue could be adjusted upward on a pro-rata basis in order to reflect the consolidated group revenue that corresponds to a 12-month Fiscal Year. For example, if the Fiscal Year of the MNE Group is comprised of 9 months and the consolidated revenue for the period is EUR 562.5 million, then the local tax authority could require the revenue to be grossed-up by the ratio of the number of months in the year to 12. Under these facts, the MNE Group’s consolidated revenue for the year for purposes of applying the threshold would be EUR 750 million (= EUR 562.5 million / [9/12]).

Article 1.1.3

16. Article 1.1.3 states that Entities that meet the definition of Excluded Entities are excluded from the GloBE Rules. These Entities are excluded from the definition of Constituent Entities, thereby taking them outside the scope of the GloBE Rules (except for purposes of calculating the revenue threshold). The various types of Excluded Entities are explained further below in the Commentary to Article 1.5.