Article 3.1.1

2. Article 3.1.1 requires that the computation of GloBE Income or Loss begins with the Financial Accounting Net Income or Loss of the Constituent Entity. That amount is adjusted for the items of income, gain, loss and expense that are set out in Articles 3.2 to Article 3.5.

Article 3.1.2

3. Article 3.1.2 defines Financial Accounting Net Income or Loss. It is the net income or loss determined for the Constituent Entity basis by taking into account all of the Entity’s income and expenses, including from transactions with other members of the Group and including the income tax expense. Stated differently, the starting point for calculating GloBE income or loss, is the bottom-line net income or loss of the Group Entity before making any consolidation adjustments that would eliminate income or expense attributable to intra-group transactions. Elimination of income and expenses from intra-group transactions that occur in the accounting consolidation process are not taken into account in the computation of a Constituent Entity’s Financial Accounting Net Income or Loss. In addition, adjustments to income or expense attributable to purchase accounting for an acquired business (irrespective of when the business was acquired) that are reflected in the MNE Group’s consolidated accounts, rather than a Constituent Entity’s separate accounts, are not taken into account in the computation of a Constituent Entity’s Financial Accounting Net Income or Loss. Items of income and expense, other than those attributable to purchase accounting, that are reflected in the consolidated accounts, rather than a Constituent Entity’s separate accounts, may be taken into account in computing the Constituent Entity’s Financial Accounting Net Income or Loss and GloBE Income or Loss only to the extent they can be reliably and consistently traced to the relevant Entity (e.g. stock-based compensation).

4. In the case of a business combination for which the acquisition date is prior to 1 December 2021, the Constituent Entity may use the carrying value reflected in its separate accounts after the application of “push down” accounting, if permitted, or the carrying value of assets and liabilities determined as per the financial accounting standard used by the UPE, but only if the MNE Group does not have sufficient records to determine its Financial Accounting Net Income or Loss with reasonable accuracy based on the unadjusted carrying values of the acquired assets and liabilities. In such cases, however, the Constituent Entity must also take into account any deferred tax assets and liabilities arising in connection with the purchase in the computation of its Financial Accounting Net Income or Loss and its Adjusted Covered Taxes. A Constituent Entity may not take into account “push down” adjustments to the carrying value of assets and liabilities attributable to the purchase of a business if the acquisition date is on or after 1 December 2021.

5. The net income or loss of the Constituent Entity has to be determined using the accounting standard that was used to determine the Constituent Entity’s income or loss in preparing the Consolidated Financial Statements (except as provided in Article 3.1.3, discussed below). In general, Consolidated Financial Statements are the financial statements prepared by a UPE in accordance with an Acceptable Financial Accounting Standard. Article 10.1 contains a list of international and national accounting standards that are Acceptable Financial Accounting Standards.

5.1 (july guidance 1-6) The GloBE Income or Loss of all Constituent Entities should be calculated in the presentation currency of the MNE Group’s Consolidated Financial Accounts. This means that the Financial Accounting Net Income or Loss of a Constituent Entity is the net income or loss determined for the Constituent Entity in preparing the MNE Group’s Consolidated Financial Statements, that has been translated into the presentation currency of the MNE Group’s Consolidated Financial Statements (before any consolidation adjustments eliminating intra-group transactions). In addition, all amounts relevant to determining the GloBE Income or Loss of a Constituent Entity will need to be translated into the presentation currency of the MNE Group’s Consolidated Financial Accounts in accordance with the relevant Authorised Financial Accounting Standard used in preparation of the Consolidated Financial Statements. This is regardless of whether the Financial Account Standard requires such amounts to be translated to the presentation currency of the MNE Group’s Consolidated Financial Statements.

5.2 The Accounting Standards permit MNE Groups to employ either of two basic paradigms for converting transactions from the local functional currency to the presentation currency of the Consolidated Financial Statements of the MNE Group. Under the first, transactions conducted in the functional currency are contemporaneously translated and recorded in the financial accounts in the presentation currency. Under the second, transactions are recorded in the financial accounts in the functional currency and translated to the Consolidated Financial Statements presentation currency in the consolidation process. For this and other reasons, MNE Group’s accounting systems may differ significantly in how much of the data is translated so that it can be reported in the presentation currency. Consequently, some of the data that is needed for the GloBE calculations is readily available in the presentation currency of the Consolidated Financial Statements and some is not.

5.3 MNEs using the first paradigm are likely to have most of their data relevant for determining a Constituent Entity’s GloBE Income or Loss readily available in the presentation currency of the Consolidated Financial Statements of the MNE Group. MNE Groups will not be required to retranslate amounts that have already been translated under the relevant accounting standard in the preparation of their Consolidated Financial Statement. 5.4 MNE Group’s using the second paradigm will often only have aggregated data available at consolidated level in the presentation. Hence, not all or even very few of the relevant amounts for GloBE purposes will be readily available in the presentation currency the Consolidated Financial Statements of the MNE Group. Where the GloBE Rules require calculations or adjustments based on more detailed data, these MNE Groups will have to rely on data, which is often only available in local functional currency of the Constituent Entity. Using such data as the starting point for the GloBE calculations should not create integrity risks because whether the data is collected from the MNE Group’s accounting system after consolidation (in the presentation currency) or preconsolidation (in the local functional currency), it is fundamentally the same information used to develop the Consolidated Financial Statements, provided the amounts are recorded in accordance with the accounting standard applicable to the Consolidated Financial Statements of the MNE Group (but not yet translated to the presentation currency). 5.5 Where this is the case, the relevant amounts required to determine a Constituent Entity’s GloBE Income or Loss will need to be translated to the presentation currency in accordance with the principles prescribed by the equivalent of IAS 21 and ASC 830 of the relevant Authorised Financial Accounting Standard used in preparation of the Consolidated Financial Statements. In addition, other parts of the relevant Authorised Financial Accounting Standard that deal with foreign exchange translations shall also be applicable, including the relevant guidance in relation to hyperinflation. 5.6 Accounting standards are not prescriptive in how MNE Groups should set their translation logic from functional currency to presentation currency. For example, the standards do not specify a translation logic, such as spot rate or annual average, for specific types of transactions. Instead, these standards are principle-based, providing a framework around how MNE Groups are to set an appropriate translation logic. This framework provides MNE Groups with some flexibility to choose an appropriate translation logic and the ability to choose different translation logics for different transactions and accounts. Therefore, MNE Groups using the second paradigm (as described in paragraph 5.4) will be afforded the same flexibility available under the relevant accounting standard. However, in determining the relevant translation logic, MNE Group’s will be required to meet the reasonable approximation requirements of the relevant Authorised Accounting Standard, as if the relevant amount were being translated directly as part of the accounting consolidation process.

6. If a UPE does not have financial statements prepared in accordance with one of those standards, its Consolidated Financial Statements are the statements that are, or would be prepared, using an Authorised Financial Accounting Standard, which is required to be adjusted to prevent Material Competitive Distortions, as necessary. Article 10.1 includes both the definitions of an Authorised Financial Accounting Standard and a Material Competitive Distortion. An Authorised Financial Accounting Standard is an accounting standard that is permitted by the Authorised Accounting Body of the jurisdiction in which an Entity is located. An Authorised Accounting Body is defined in Article 10.1 as the body with legal authority in a jurisdiction to prescribe, establish, or accept accounting standards for financial reporting purposes. Authorised Financial Accounting Standards are thus identified by the Authorised Accounting Body of a particular jurisdiction and not all Acceptable Financial Accounting Standards will be Authorised Financial Accounting Standards in a given jurisdiction. Note that only Authorised Financial Accounting Standards that are not Acceptable Financial Accounting Standards may require adjustment for Material Competitive Distortions, whereas the list of international and national accounting standards that are Acceptable Financial Accounting Standards do not require such adjustment.

7. There are a number of advantages to using the information used to prepare the Consolidated Financial Statements as the starting point for calculating GloBE Income or Loss. It results in greater consistency than using local accounting standards for Constituent Entities located in different jurisdictions, such as different materiality thresholds for certain transactions and different criteria for classifying research and development expenditures, and avoids the risk of arbitrage from the use of different accounting standards. Further, it reduces compliance costs, by drawing on information that is already being prepared for reporting purposes and may benefit from being subject to review by an independent auditor.

8. Neither the Financial Accounting Net Income or Loss nor the adjustments set out in Article 3.2 are proportionally reduced for income or loss attributable to minority interests in the Constituent Entity itself. Instead, Top-up Tax attributable to Ownership Interests held by non-Constituent Entities is effectively excluded from the determination of a Parent Entity’s Allocable Share of the Top-up Tax under the IIR via the Inclusion Ratio determined in Article 2.2.

9. Because the rules for computing GloBE Income or Loss begin with the Financial Accounting Net Income or Loss reflected in the profit and loss statement, income or expense items that are reported under certain financial accounting standards in the Other Comprehensive Income (OCI) section of the Consolidated Financial Statements (rather than in the profit and loss statement) are generally excluded from the computation of GloBE Income or Loss. The items included in OCI may include gains and losses on certain debt and equity investments, foreign currency exchange gains and losses, and changes in liabilities under pension plans. Included Revaluation Method Gain or Loss, which is discussed in the Commentary to Article 3.2.1(d), is an exception to the general rule that items reflected in OCI are excluded from the computation of GloBE Income or Loss.

10. Some items that are included in OCI may also be included in the computation of taxable income in the jurisdiction in which the Constituent Entity is located and thus the Constituent Entity may accrue current or deferred tax liabilities associated with those items. Nevertheless, these items are generally excluded from GloBE Income or Loss, and pursuant to Article 4.1.3(a), if any taxes associated with income reported in OCI and excluded from GloBE Income or Loss are included in the Constituent Entity’s current tax expense (instead of reflected in OCI), they must be removed from the Constituent Entity’s Adjusted Covered Taxes.

11. In other cases, items of income or loss reported in OCI are “recycled” through the profit and loss statement, meaning that they are included in the profit and loss statement at a later date. To the extent these items are also included in the taxable income of the Constituent Entity, these items will only be expected to give rise to a temporary or timing difference between the local tax base and the Financial Accounting Net Income or Loss. In certain cases, however, they could give rise to a permanent difference when included in the profit and loss statement at a later date, but not the taxable income of the Constituent Entity.

12. Because the accounting standards used to prepare the Consolidated Financial Statements include a materiality threshold, minor or inconsequential deviations from a strict application of the UPE’s accounting standard in the computation of a particular Constituent Entity’s Financial Accounting Net Income or Loss for purposes of preparing the Consolidated Financial Statements do not need to be adjusted when such threshold is not exceeded. The financial accounting auditor’s acceptance of a deviation in the Consolidated Financial Statements without a qualification to the auditor’s opinion is good evidence that the difference is immaterial. On the other hand, an auditor’s opinion that contains a qualification with respect to the accounting treatment of a specific item or items of income and expense is relevant, but not conclusive, evidence that the deviation is material. In addition, if a UPE uses an accounting standard permitted by the Authorised Accounting Body in the UPE Jurisdiction and the Authorised Accounting Body permits the UPE to apply a different accounting standard to compute the Financial Accounting Net Income or Loss of foreign Constituent Entities (for purposes of preparing the Consolidated Financial Statements), the Financial Accounting Net Income or Loss computed for those foreign Constituent Entities using the different accounting standard need not be adjusted to strictly conform to the UPE’s accounting standard.

Article 3.1.3

13. Article 3.1.3 is intended to address a situation where the Constituent Entity maintains its entitylevel financial accounts using an accounting standard that is different from the standard used in the preparation of the UPE’s Consolidated Financial Statements and it is not reasonably practicable to accurately calculate its Financial Accounting Net Income or Loss in conformity with the accounting standard used by the UPE in the Consolidated Financial Statements. In this event, the Financial Accounting Net Income or Loss may be determined using another Acceptable Financial Accounting Standard or Authorised Financial Accounting Standard (adjusted for Material Competitive Distortions). This rule is not expected to apply in many cases because an MNE Group will typically have mechanisms in place to convert a subsidiary’s entity-level accounts to the UPE’s accounting standard in connection with the preparation of the Consolidated Financial Statements. In those circumstances, it is reasonably practicable to accurately calculate the Constituent Entity’s Financial Accounting Net Income or Loss based on the standard used in the preparation of the UPE’s Consolidated Financial Statements However, the rule could apply, for example, when the MNE Group has undertaken a recent acquisition of a group of Entities that have historically used a different accounting standard to that of the acquiring MNE Group and it is not reasonably practicable for the MNE Group to convert the acquired Entities’ financial accounting systems from the their historical financial accounting standard to the UPE’s standard.

14. Where it is not reasonably practicable to use the UPE’s financial accounting standard to compute the Constituent Entity’s Financial Accounting Net Income or Loss, the use of an alternative accounting standard is further limited by three conditions. The first condition of Article 3.1.3 is that the financial accounts of the Constituent Entity are maintained based on an Acceptable Financial Accounting Standard or Authorised Financial Accounting Standard. Financial accounts maintained under an Authorised Financial Accounting Standard must be adjusted for Material Competitive Distortions. A Constituent Entity may not use an accounting standard under Article 3.1.3 other than the one used in its financial accounts. If the Constituent Entity does not maintain its financial accounts based on an Acceptable Financial Accounting Standard or Authorised Financial Accounting Standard, it must compute its financial accounting income using the UPE’s financial accounting standard, notwithstanding any practical difficulties.

15. The second condition under Article 3.1.3 is that the information in the financial accounts maintained according to the other accounting standard is reliable. This means that there must be appropriate mechanisms in place to ensure that the information is recorded accurately. In this regard, the financial accounting internal controls and accounting processes employed by the Constituent Entity must be tested and deemed acceptable to the financial accounting auditor pursuant to generally accepted auditing standards applicable in the location of the UPE or the Constituent Entity (in the case of a Flow-through Entity in the jurisdiction of creation). If the Constituent Entity does not meet this requirement in a Fiscal Year, it must determine the actual income and expenses for that year and develop and implement mechanisms to ensure that the information in the accounts is reliable.

16. The final condition of Article 3.1.3 is that the use of the other accounting standard must not result in permanent differences in excess of EUR 1 million from the financial accounting standard of the UPE. If the permanent differences, in the aggregate, exceed EUR 1 million, the treatment of the relevant items in the Constituent Entity’s financial accounts must be adjusted to conform to the treatment that would apply under the UPE’s financial accounting standard. This condition only applies to permanent differences between the accounting standards. For example, if a financial instrument is treated as debt under the UPE’s financial accounting standard and equity under the other accounting standard, the UPE’s standard will reflect payments received on the instrument in the financial accounting net income and the other standard will not. This will result in a permanent difference in the Financial Accounting Net Income or Loss of the holder of the instrument. Timing differences, including differences in the financial accounting period used under the different accounting standard, are not subject to this condition.

16.1 Similar to the requirement for Article 3.1.2, amounts determined in accordance with Article 3.1.3 must be translated into the presentation currency of the Consolidated Financial Statements for the purpose of determining a Constituent Entity’s GloBE Income or Loss in accordance with the guidance set out in paragraphs 5 to 5.6 of the Commentary to Article 3.1.2. This requirement applies regardless of the fact that such amounts may have been determined in accordance with another Authorised Financial Accounting Standard. Unless the foreign currency translation requirements of the Authorised Financial Accounting Standards used pursuant to Article 3.1.3 significantly diverge from those of the Authorised Financial Accounting Standard used to prepare the Consolidated Financial Statements, it is expected that the foreign currency translation logic applicable to any amounts required to be translated to the presentation currency would be the same as if the amounts had been translated under the accounting standard used to prepare the Consolidated Financial Statements.