Article 4.1.1

4. The starting point for the computation of the taxes to be taken into account in the ETR calculation for GloBE purposes is the current tax expense that is accrued in the Financial Accounting Net Income or Loss of a Constituent Entity with respect to Covered Taxes, as defined under in Article 4.2. Thus, to the extent that current tax expense accrued for Financial Accounting Net Income or Loss includes amounts that are not accrued in respect of Covered Taxes, such as property or excise Taxes, those amounts are excluded from the taxes that are taken into account in the ETR calculation for GloBE purposes under the opening language in Article 4.1.1 without the need for a specified adjustment identified in paragraphs (a), (b) and (c) of Article 4.1.1..

(a) The adjustments to be made under paragraph (a) are Additions to Covered Taxes and Reductions to Covered Taxes which are described in Articles 4.1.2 and 4.1.3 respectively and discussed further in the Commentary below.

(b) The adjustments required under paragraph (b) are with respect to the Total Deferred Tax Adjustment Amount which is described in Article 4.4 and discussed further in the Commentary to that Article below.

(c) Paragraph (c) provides that the increase or decrease in Covered Taxes that is not included in current or deferred tax expense, but is recorded in equity or OCI shall be treated as an adjustment to Covered Taxes when the amounts of income or loss to which such taxes relate is taken into account in the computation of GloBE Income or Loss. This provision ensures that when Covered Taxes are incurred with respect to items included in the computation of GloBE Income or Loss, such Covered Taxes are taken into account even if they are not recorded in current or deferred tax expense and reported in the profit and loss statement. However, this adjustment shall only apply where the amount of income or loss to which the Covered Taxes relate is subject to tax under local tax rules. Paragraph (c) may apply, for example, where a Constituent Entity is subject to tax on gains and losses that were taken into account under OCI pursuant to the revaluation method for property, plant and equipment. When such a gain is included in the computation of GloBE Income or Loss, the associated increase in Covered Taxes will be taken into account under this paragraph. Conversely, when a loss arises in the same manner, the reduction in associated Covered Taxes will reduce Covered Taxes under this paragraph. See further discussion of the Included Revaluation Method Gain or Loss in the Commentary to Article 3.2.1(d) in respect of the Adjustments to determine GloBE Income or Loss.

Article 4.1.2

5. Article 4.1.2 requires certain additions to the Adjusted Covered Taxes to be taken into account for GloBE purposes in order to ensure that all Covered Taxes are properly captured and attributed to the Constituent Entity. An adjustment may be required under Article 4.1.2 because the range of items identified as income taxes in the financial statements may be narrower than the items that fall within the definition of Covered Taxes for the purposes of the GloBE Rules. There are four types of adjustments required under paragraphs (a) to (d).

(a) The definition of Covered Taxes is generally broader than the scope of Taxes that qualify as income taxes under financial accounting principles. Thus, some Covered Taxes may not be recorded as an income tax expense in the financial statements of a Constituent Entity. Instead, they may be expensed in the computation of profit and loss before tax. Accordingly, paragraph (a) adds back to the measure of Adjusted Covered Taxes, any accrued liability for Covered Taxes that was reported as an ordinary expense, rather than income tax expense, in the financial statements. A corresponding adjustment is made to the Financial Accounting Net Income or Loss in computing the GloBE Income or Loss pursuant to Article 3.2.1(a). For example, a Tax on corporate equity is a Covered Tax that may be recorded as an expense in determining a Constituent Entity’s profit or loss before income tax, rather than in the current tax expense. To ensure consistency, this Tax is added back to GloBE Income or Loss and added to the current tax expense in the determination of Adjusted Covered Taxes.

(b) Paragraph (b) adds the amount of GloBE Loss Deferred Tax Asset that is used in a Fiscal Year. The GloBE Loss Deferred Tax Asset is available when an election is made under Article 4.5. This election, discussed in greater detail in the Commentary to Article 4.5, provides for a deemed loss deferred tax asset in lieu of applying the modified deferred tax accounting rules of Article 4.4. This GloBE Loss Deferred Tax Asset must be added to Adjusted Covered Taxes in the computation of the ETR for the jurisdiction in the Fiscal Year in which the attribute is used. Under Article 4.5, the GloBE Loss Deferred Tax Asset attribute is used when GloBE Income is earned in a Fiscal Year subsequent to having incurred a GloBE Loss.

(c) Paragraph (c) adds the amount, if any, of Covered Taxes paid related to an uncertain tax position but only to the extent of the amount that was previously treated as a reduction to Covered Taxes under Article 4.1.3(d). However, as discussed in greater detail in the Commentary to Article 4.2.1, any penalties or interest expense accrued or paid with respect to such uncertain tax position shall not be included in this addition to Covered Taxes. As discussed in greater detail in the Commentary to Article 4.1.3(d) below, when tax expense is accrued with respect to uncertain tax positions, such amount is not included in Adjusted Covered Taxes given the uncertainty as to if, and when, such amount will be paid. However, once the amount is paid, it is appropriate to include the amount in Covered Taxes.

(d.) Paragraph (d) adds any amount of refund or equivalent credit in respect of a Qualified Refundable Tax Credit or Marketable Transferable Tax Credit that has been recorded as a reduction to current tax expense. A Qualified Refundable Tax Credit is defined in Article 10.1 as a refundable tax credit designed in a way such that it is refundable within 4 years from when a Constituent Entity satisfies the conditions for receiving the credit under domestic law of a jurisdiction in which the Constituent Entity is located. A Marketable Transferable Tax Credit is defined in paragraph 112.1 of the Commentary to Article 3.2.4. Qualified Refundable Tax Credits and Marketable Transferable Tax Credits are treated as income items in the computation of GloBE Income or Loss. Accordingly, when such credit or refund is granted, any amount that has been recorded as a reduction to current tax expense in the Constituent Entity’s financial accounts is reversed-out in the same Fiscal Year the current tax expense is recorded in order to prevent the ETR for the jurisdiction being understated by such a reduction in Covered Taxes. The GloBE Rules provide for a corresponding adjustment to the Financial Accounting Net Income or Loss that treats the amount of Qualified Refundable Tax Credit and Marketable Transferable Tax Credit as income in the year the entitlement to such credit accrues (see the Commentary to Article 3.2.4).

Article 4.1.3

6. Article 4.1.3 requires subtraction of several types of Covered Taxes to ensure that the ETR calculation for the relevant Constituent Entity reflects only taxes that arise in respect of GloBE Income or Loss and that are expected to be paid within three years.

Paragraph (a)

7. Paragraph (a) removes the amount of Covered Taxes with respect to income excluded from the computation of GloBE Income or Loss under Chapter 3. It follows that when an item of income is not included in the computation of GloBE Income or Loss that the taxes associated with such income shall not be taken into account in the computation of the ETR for the GloBE Income or Loss in the jurisdiction. Many of the income items excluded from a Constituent Entity’s computation of GloBE Income or Loss will relate to returns, including dividends and gains, on share or equity investments. Such items often benefit from full or partial exemption regimes, however, these and other excluded income items may be subject to Covered Taxes in certain jurisdictions or circumstances. In such cases, Article 4.1.3 requires that such taxes be excluded from Covered Taxes when the item of income upon which such tax is imposed is excluded from the computation of GloBE Income or Loss.

8. Assume, for example, a Constituent Entity is subject to tax on dividends that are received from a significant minority (e.g. 25%) investment in a corporation. This tax relates to income that is not taken into account under the GloBE Rules pursuant to Article 3.2.1(b) and therefore the corresponding taxes should be excluded from the determination of Adjusted Covered Taxes. Another example could be a Constituent Entity that owns a minority interest in a partnership that is accounted for using the equity method for financial accounting purposes. That Constituent Entity may be subject to net basis taxation on its share of a partnership’s net income. However, because income from the Ownership Interest in the partnership is accounted for using the equity method of accounting, it is generally excluded from the Constituent Entityowner’s GloBE Income or Loss, and if the tax expense associated with that interest is included in current tax expense, it must also be subtracted to determine Adjusted Covered Taxes.

9. The adjustment under paragraph (a) also encompasses Covered Taxes on certain international shipping income. CIT or tonnage tax accrued by a Constituent Entity with respect to its International Shipping Income or Qualified Ancillary International Shipping Income would meet the definition of Covered Taxes, either under Article 4.2.1(a) as a Tax on income or under Article 4.2.1(c) as a Tax imposed in lieu of a generally applicable CIT. To the extent relevant international shipping or ancillary income is excluded from a Constituent Entity’s GloBE Income or Loss pursuant to the exclusion in Article 3.3, the Covered Taxes accrued with respect to such income must also be excluded from the GloBE ETR calculation. However, Covered Taxes arising in connection with any amount of income from qualifying ancillary activities that exceeds the limitation in Article 3.3.4 are included in Adjusted Covered Taxes because the related income is included in the computation of GloBE Income or Loss.

10. Where paragraph (a) applies it will be necessary to quantify the amount of Covered Taxes to be excluded. To the extent no tax is imposed upon the income item (i.e., a dividend that is exempt from taxation under domestic law) there will be no tax to exclude. Where the entire amount of the income item is excluded, the excluded taxes must be determined on the same basis without regard to any related expenses. This means, for example, that in the case of a withholding tax on an excluded dividend, the entire withholding tax is excluded, however, in the case of a CFC charge on a minority interest, that portion of the shareholder’s income tax attributable to the CFC inclusion must be excluded from the Constituent Entity’s Adjusted Covered Taxes when calculating the GloBE ETR. Note that if an item of income is partially excluded from GloBE Income or Loss, paragraph (a) shall apply only to the extent of the excluded portion.1

11. While paragraph (a) removes an amount of Taxes from the Adjusted Covered Taxes of the Constituent Entity that accrued the Taxes, those Taxes may not disappear from the GloBE tax calculation entirely if they have been allocated to another Constituent Entity pursuant to Article 4.2.1. For example, in the case of Covered Taxes arising in respect of dividends or other distributions from another Constituent Entity, paragraph (a) removes the taxes from the Adjusted Covered Taxes of the Constituent Entity that received the distribution and accrued the tax expense, however such Taxes are allocated to, and included in the Adjusted Covered Taxes of, the distributing Constituent Entity pursuant to Article 4.3.2(e). Although dividends received from other Constituent Entities are excluded from the GloBE Income or Loss, Taxes on those dividends represent new or additional taxes on the income of the distributing Constituent Entity that has been included in the GloBE Income or Loss. Thus, such Covered Taxes are properly taken into account in computing the ETR of the Constituent Entity that distributed the underlying income. The key distinction between Covered Taxes imposed on intra-group dividends, i.e. dividends received from another Constituent Entity, and Covered Taxes imposed on other Excluded Dividends and equity method income is that the underlying income that funded the intra-group dividend was previously included in the MNE Group’s GloBE Income or Loss when earned. Therefore Taxes paid on such distributed income are included in the distributing Constituent Entity’s Adjusted Covered Taxes and, ultimately, in the numerator of the ETR computation.

12. Similarly, subject to the limitations of Article 4.3.3, Covered Taxes arising in connection with an income inclusion under a CFC Tax Regime imposed on another Constituent Entity are allocated to, and included in the Adjusted Covered Taxes of, the Constituent Entity CFC pursuant to Article 4.3.2(c). To the extent Covered Taxes are not allocated because of the operation of Article 4.3.3, such Covered Taxes are included in the Adjusted Covered Taxes of the Constituent Entity-owner.

Paragraph (b)

13. A Non-Qualified Refundable Tax Credit may be treated, for financial accounting purposes, as income of Constituent Entity. However, for GloBE purposes these Non-Qualified Refundable Tax Credits are excluded from the computation of GloBE Income or Loss pursuant to Article 3.2.4 and are treated as a reduction in the tax expense of the Constituent Entity. Article 4.1.3(b) achieves this by subtracting from the current tax expense the amount of credit or refund in respect of a Non-Qualified Refundable Tax Credit to the extent that such amount is not already recorded as a reduction to the current tax expense. Paragraph (b) therefore compliments the operation of Article 3.2.4 by ensuring that any Non-Qualified Refundable Tax Credit is treated as a reduction to current tax expense rather than an additional income item in the GloBE ETR calculation.

Paragraph (c)

14. In general, paragraph (c) reduces Covered Taxes by the amount of tax credits (other than Qualified Refundable Tax Credits and Marketable Transferable Tax Credits) that reduce the Constituent Entity’s liability for Covered Taxes as well as any amount of previously-claimed Covered Taxes that are refunded (including a refund that is applied as a credit against another Covered Tax liability) to a Constituent Entity to the extent that the tax credit or refund has not already been treated as an adjustment to current tax expense in the financial accounts.

Tax credits

14.1 Except as provided in paragraphs 14.2 and 14.3, a tax credit (other than a Qualified Refundable Tax Credit and a Marketable Transferable Tax Credit) shall be treated as a reduction to Covered Taxes to the extent it is used to reduce a Constituent Entity’s liability for a Covered Tax for a taxable period that ends during the Fiscal Year.

14.2 A Non-Marketable Transferable Tax Credit is a tax credit that: (a) if held by the Originator, is transferable but is not a Marketable Transferable Tax Credit; and (b) if held by a purchaser, is not a Marketable Transferable Tax Credit.

14.3 In the case of a Non-Marketable Transferable Tax Credit: (a) the Originator shall reduce its Covered Taxes for a Fiscal Year to the extent the tax credit is used to satisfy its liability for a Covered Tax for a taxable period that ends during such Fiscal Year and to the extent of any amount received in exchange for the credit during such Fiscal Year; (b) a purchaser shall reduce its Covered Taxes for a Fiscal Year by any excess of the face value of the tax credit over its purchase price in proportion to the amount of the credit used to satisfy its liability for a Covered Tax for a taxable period that ends during such Fiscal Year; and (c) a purchaser shall reduce its Covered Taxes by the amount of any gain on the transfer as a reduction to Covered Taxes in the event that it transfers the tax credit during the Fiscal Year and include any loss on the transfer in the computation of its GloBE Income or Loss for such Fiscal Year.

14.4 For the purposes of determining the GloBE category of a tax credit, the refundability criteria should be tested primarily, and the transferability should be tested subordinately. Accordingly, if a tax credit meets the refundability criteria and qualifies as a QRTC, it will be defined as a QRTC regardless of whether it could be also transferable at a marketable price. If the tax credit rather does not meet the refundability criteria (i.e. it is either a non-refundable or a nonQRTC), then the transferability criteria shall be tested in order to determine whether the tax credit could be considered a Marketable Transferable Tax Credit. Refunds (and credits) of previously claimed Covered Taxes

14.5 Paragraph (c) also ensures that to the extent a Constituent Entity receives a refund of previously claimed Covered Taxes, including a refund that is applied as a credit (i.e. credited) against another Covered Tax liability, the amount of the refund (or credit) is treated as a reduction to Adjusted Covered Taxes. This is the case even where the Constituent Entity’s accounting principles or policy did not treat that amount as an adjustment to the current tax expense for a Covered Tax.

14.6 Under paragraph (c), the Adjusted Covered Taxes are reduced for the Fiscal Year in which the tax refund (or credit) is accrued in the financial accounts. In the case of a refund or credit of previously claimed Covered Taxes, the application of paragraph (c) to refunds (or credits) will be limited, because Article 4.6.1 governs adjustments to the Adjusted Covered Taxes in the case of a tax refund and requires an adjustment to the Adjusted Covered Taxes for a previous Fiscal Year where the refund is EUR 1 million or more. Paragraph (c) will apply only when such a refund (or credit) is not an adjustment to a Constituent Entity’s liability for Covered Taxes for a previous Fiscal Year under Article 4.6.1.

15. Paragraph (c) would also apply, for example, if a jurisdiction provided a refund (or credit) for previously claimed Covered Taxes on corporate equity where the tax and the corresponding refund (or credit) was taken into account as an ordinary expense or income for financial reporting purposes in the year of the refund (or credit). This paragraph also applies to refunds (and credits) in respect of Covered Taxes when the refund (or credit) is made to a different Constituent Entity than the entity that originally incurred the tax expense. Paragraph (c) may apply to refunds (and credits) in respect of Covered Taxes paid or accrued in a current or previous Fiscal Year (subject to the overriding operation of Article 4.6).

Paragraph (d)

16. Paragraph (d) removes the amount of current tax expense which relates to an uncertain tax position. Current tax expense related to uncertain tax positions is disallowed, given the MNE Group’s determination (and possibly its explicit or implicit assertion to the relevant tax authority) that the taxes are not owed and the high degree of uncertainty with respect to whether such amounts will be paid in a future period. Although the precise criteria may differ under Acceptable Financial Accounting Standards, uncertain tax positions generally result when a Constituent Entity takes a filing position that is not more likely than not to be sustained upon examination. Financial accounting standards require that a reserve is established for such positions. If the filing position is sustained, the reserve is released, meaning the expense is reversed and a corresponding amount of income is reflected in the financial accounts. Given the nature of such accruals, the movement in these amounts may not be included in Adjusted Covered Taxes unless and until the amount is actually paid.

Paragraph (e)

17. Paragraph (e) provides that any amount of current tax expense that is not expected to be paid within three years of the last day of the Fiscal Year shall be treated as a reduction to Covered Taxes. This rule supports the application of Article 4.6.4 which requires the recapture of material amounts previously claimed as Covered Taxes and not paid within three years of the last day of the Fiscal Year. Under paragraph (e), if the taxpayer has no expectation to pay the tax within the three-year timeframe, it may not be included in the computation of Adjusted Covered Taxes. Because timely payment of liability for Covered Taxes is within the control of the MNE Group, there is no mechanism to include amounts paid after expiration of the three-year period in Adjusted Covered Taxes. This also prevents an abuse whereby a Constituent Entity could assert that it does not intend to pay the tax in a year where the Constituent Entity is well over the Minimum Rate, and then subsequently pays the tax liability in a year in which it is below the Minimum Rate, using the rule to escape what would otherwise be Top-up Tax liability. Paragraph (e) applies with respect to amounts of current tax expense, accordingly post-filing adjustments, such as additional tax liability resulting from a subsequent audit, will not fall within the scope of this paragraph since such amounts are not included in current tax expense. Article 4.6 provides the rules with respect to Covered Taxes paid as a result of a post-filing adjustment. In addition, there is a special rule set forth in Article 4.1.2(c) to include amounts paid with respect to uncertain tax positions, which permits the inclusion of such amounts irrespective of the operation of this paragraph.

Article 4.1.4

18. The adjustments made in Articles 4.1.1 to 4.1.3 may overlap such that a single levy could be described in two adjustment categories. However, Article 4.1.4 clarifies that Covered Taxes can only be included in the Adjusted Covered Taxes of a single Constituent Entity and they can be included only once. If a levy is described in two adjustment categories, the amount of Covered Taxes accrued in respect of such levy for the Fiscal Year is therefore not counted twice in the determination of Adjusted Covered Taxes.

Article 4.1.5

19. Article 4.1.5 provides a special rule that applies in limited circumstances when there is no GloBE Income in a jurisdiction for the Fiscal Year and the MNE Group computes a negative amount of Adjusted Covered Taxes for the jurisdiction and there is a permanent difference between the local taxable income and the GloBE Income. This fact pattern may occur when the local tax rules in the Constituent Entity’s jurisdiction grant a deduction from income that is in excess of the amount that would be allowed for financial accounting purposes and where that difference between GloBE and local tax rules will not reverse over time. Examples of items that could give rise to permanent differences include notional interest deductions or a deduction that is in excess of economic cost (i.e. a super deduction). Permanent differences may also arise where a jurisdiction exempts an item of income or gain that is included in GloBE Income or Loss in a Fiscal Year where the Constituent Entity still has an overall economic loss for the year. However, the generation of a GloBE Loss Deferred Tax Asset under Article 4.5 will not result in Top-up Tax under Article 4.1.5 because, when elected, Article 4.5 applies in lieu of Article 4.4.

20. Although Article 4.1.5 may apply in other scenarios, the most common fact pattern in which Article 4.1.5 will apply is where there is a tax loss that is greater than the amount of loss recognised for GloBE purposes. In these cases simply allowing a Constituent Entity to use its local tax loss as the starting point for determining its Total Deferred Tax Adjustment Amount under Article 4.4 would undermine the integrity of the GloBE Rules by effectively allowing the Constituent Entity to substitute the (more generous) local tax rules for those agreed under the GloBE. One option would have been to require the Constituent Entity to make an adjustment to the amount of deferred tax asset in these cases to align it with GloBE outcomes. However, this would have required developing an alternative deferred tax accounting methodology for addressing these specific cases as well as mechanisms for tracking and tracing such differences over time, thereby undermining the compliance and administration benefits of relying on deferred tax accounting to address timing differences. Instead, the approach taken under Article 4.1.5 is to tax the excess benefit resulting from the permanent difference in the year it is created at the Minimum Rate but to allow the Constituent Entity to follow the local tax rules and apply the excess deferred tax asset arising for local tax purposes to shelter income in a future year without giving rise to adverse outcomes under the GloBE Rules.

21. In situations where the local tax loss is greater than the loss that has been recorded for GloBE purposes in a Fiscal Year, an Additional Current Top-up Tax charge will typically arise because the additional tax loss results from a deduction for a non-economic loss or similar permanent difference between the local tax base and GloBE Income or Loss. For example, if there is a Net GloBE Loss of (100) for a jurisdiction, the maximum amount of deferred tax asset generated in such year for GloBE purposes should be 15 (i.e. the GloBE Loss multiplied by the Minimum Rate). This amount is described in Article 4.1.5 as the “Expected Adjusted Covered Taxes Amount”. Where the loss allowed for local tax purposes is in excess of the Net GloBE Loss (for example, a local tax loss of 150) and this difference is the result of permanent differences between the local and GloBE tax base, the Total Deferred Tax Adjustment Amount under Article 4.4 will be greater than the Expected Adjusted Covered Taxes Amount. In this case Additional Current Top-up Tax of 7.5 (50*15%) would be applicable under Article 4.1.5, which will have the effect of taxing this difference at the minimum rate. Article 5.4.3 provides rules related to the allocation of the Top-up Tax arising under Article 4.1.5 among Constituent Entities located in the jurisdiction.

Carry-forward of Excess Negative Tax Expense

21.1 The total Adjusted Covered Taxes determined by an MNE Group for a jurisdiction may be less than zero for a variety of reasons. In many cases, the negative Adjusted Covered Taxes amount will correspond to the amount of the GloBE Loss for the jurisdiction. However, when there are permanent differences in the computation of taxable income or loss and GloBE Income or Loss, the negative Adjusted Covered Taxes determined for a jurisdiction that has a GloBE Loss may be less than the expected Adjusted Covered Taxes on the GloBE Loss, i.e. less than 15% of the GloBE Loss. In some cases, permanent differences may produce disparities in the negative Adjusted Covered Taxes and negative tax expense for a jurisdiction that has GloBE Income for the year.

21.2 When there are negative Adjusted Covered Taxes in a Fiscal Year in which there is also a GloBE Loss, the MNE Group must pay an Additional Top-up Tax pursuant to Article 4.1.5 to the extent that the negative Adjusted Taxes are less than 15% of the GloBE Loss determined for the year. The amount of negative tax expense attributable to permanent differences is not determined under Article 4.1.5 based on a comparison of the different items of income or expense taken into account in computing the GloBE Loss and the tax loss. Instead, Article 4.1.5 determines the aggregate amount of negative tax expense attributable to permanent differences based on the difference between the Expected Adjusted Covered Taxes Amount (i.e. the GloBE Loss multiplied by the Minimum Rate) and the Adjusted Covered Taxes determined for the jurisdiction.

21.3 When there are negative Adjusted Covered Taxes in a Fiscal Year in which there is GloBE Income for the jurisdiction, the Top-up Tax Percentage for a jurisdiction will exceed the Minimum Rate. Much like the conditions that activate Article 4.1.5, the negative Adjusted Covered Taxes that cause this result are attributable to permanent differences in the computation of GloBE Income or Loss and the taxable income or loss.

21.4 The Inclusive Framework considered a methodology that would require MNE Groups to identify the permanent differences that created the scenarios described above and adjust the deferred tax assets and liabilities for GloBE purposes to eliminate the effect of the permanent difference. However, the Inclusive Framework concluded that this approach would be impractical and overly burdensome for both MNE Groups and tax administrations. Nonetheless, the Inclusive Framework considers that the GloBE Rules should also provide an administrative procedure that will allow MNE Groups to avoid Additional Top-up Tax under Article 4.1.5 in the year in which it has a GloBE Loss and Top-up Tax Percentages in excess of the Minimum Rate under Article 5.2.1. Accordingly, the Inclusive Framework has agreed that in cases where Article 4.1.5 applies, a MNE Group may apply the Excess Negative Tax Expense administrative procedure described below. In cases where the Top-up Tax Percentages are excess of the Minimum Rate under Article 5.2.1, a MNE Group must apply the Excess Negative Tax Expense administrative procedure described below. The Excess Negative Tax Expense Carry-forward arising under the administrative procedure is a GloBE tax attribute of the MNE Group that is retained until it is used in full irrespective of whether the Constituent Entities in the jurisdiction are disposed. The Inclusive Framework considered eliminating the attribute to the extent it was attributable to a permanent difference in certain circumstances, for example when it was included in a loss carry-forward DTA, after all the Constituent Entities in the relevant jurisdiction were disposed. However, the Inclusive Framework concluded that a more targeted rule would add significant complexity and potential for disputes over the nature and make-up of the remaining Excess Negative Tax Expense Carry-forward. Furthermore, eliminating the attribute in these circumstances would be inappropriate in cases where the deferred tax assets and liabilities of a Constituent Entity whose tax position created the Excess Negative Tax Expense Carry-forward is transferred to another MNE Group that is within scope of the GloBE Rules, if the local tax rules permit the item that gave rise to the Article 4.1.5 adjustment amount to be taken into account for local tax purposes by the acquiring MNE Group. Accordingly, the Inclusive Framework determined that the need for simplicity and certainty in the application of Article 4.1.5 outweighed any potential benefits that might arise from additional precision in this respect.

21.5 An MNE Group that elects or is required to apply the Excess Negative Tax Expense administrative procedure shall exclude the Excess Negative Tax Expense from its aggregate Adjusted Covered Taxes computed for the Fiscal Year and establish an Excess Negative Tax Expense Carry-forward. The Excess Negative Tax Expense for a Fiscal Year in which the MNE Group realizes no GloBE Income for the jurisdiction is equal to the amount computed under Article 4.1.5 for that Fiscal Year. The Excess Negative Tax Expense for a Fiscal Year in which the MNE Group realizes positive GloBE Income for the jurisdiction is equal to the negative Adjusted Covered Taxes for that Fiscal Year. In each subsequent Fiscal Year in which the MNE Group has positive GloBE Income and Adjusted Covered Taxes for the jurisdiction, the MNE Group shall decrease (but not below zero) the aggregate Adjusted Covered Taxes by the remaining balance of the Excess Negative Tax Expense Carry-forward. Then, the MNE Group shall reduce the balance of the Excess Negative Tax Expense Carry-forward by the same amount. Under the Excess Negative Tax Expense administrative procedure, the Excess Negative Tax Expense attributable to an amount of a loss that is carried back and applied against income for prior taxable years for domestic tax purposes must be taken into account under Article 4.1.5 currently and cannot be included in the Excess Negative Tax Expense Carry-forward. See also the Commentary to Article 4.6.1 related to the treatment of loss carrybacks under the GloBE Rules.

21.6 When an MNE Group applies the Excess Negative Tax Expense administrative procedure, the negative amount of Adjusted Covered Taxes will not be less than the Expected Covered Taxes Amount under Article 4.1.5 when the MNE Group has a GloBE Loss or the ETR will not be less than zero when it has GloBE Income in a jurisdiction. Accordingly, when a Constituent Entity applies this administrative procedure, the MNE Group will not be subject to tax under the GloBE Rules due to an Additional Top-up Tax Amount under Article 4.1.5 or compute a Top-up Tax Percentage for a jurisdiction that exceeds the Minimum Rate.

21.7 Use of the Excess Negative Tax Expense administrative procedure under Article 4.1.5 for a jurisdiction is an annual election. An MNE Group makes the election by applying the administrative procedure to the computation of aggregate Adjusted Covered Taxes for the jurisdiction in the year in which the MNE Group has Excess Negative Tax Expense and using the resulting Adjusted Covered Taxes in the computation of the jurisdictional ETR. When elected, the Excess Negative Tax Expense Carry-forward must be utilised in all relevant subsequent computations of the jurisdictional ETR.

21.8 Should an MNE Group dispose of one or more Constituent Entities in a jurisdiction in which it has made the annual election described in the previous paragraph, the Excess Negative Tax Expense Carry-forward shall remain an attribute of the transferor group. The MNE Group shall maintain a record of the outstanding balance of the carry-forward. If the MNE Group disposes of all Constituent Entities in a jurisdiction and re-acquires or establishes Constituent Entities in that jurisdiction in a subsequent Fiscal Year, the balance of the Excess Negative Tax Expense Carryforward shall be taken into account in determining the Adjusted Covered Taxes for the jurisdiction beginning with such Fiscal Year.