Article 6.1.1

Paragraph (a) – Merger between two or more Groups

21. Article 6.1.1(a) applies where two or more Groups merge into a single Group. Given that the Groups were separate and not part of a merged Group in prior years, the question arises as to how the consolidated revenue threshold is to be applied under these circumstances.

22. Paragraph (a) answers this question by deeming the revenue threshold to be met in a given preceding year if the sum of the revenue included in each Group’s Consolidated Financial Statements for that year is equal to or greater than EUR 750 million. Neither Group’s pre-merger revenues are adjusted for transactions that occurred between the Groups in the preceding years, notwithstanding that transactions between Entities will be eliminated in consolidation after the merger. This determination has to be made for each of the Fiscal Years that are tested under the consolidated revenue test in Article 1.1.

23. For instance, assume that A Group and B Group reported separately consolidated revenue of EUR 400 million, EUR 300 million, EUR 300 million and EUR 400 million each for years 1 to 4 respectively. The A Group and B Group merge in year 5 into the AB MNE Group. Under these facts, the AB MNE Group is subject to the GloBE Rules in year 5 because in two of the four preceding Fiscal Years the sum of their consolidated revenue included in each of their Consolidated Financial Statements was EUR 750 million or more (i.e. in year 1, the combined revenue was of EUR 800 million and in year 4, the combined revenue was of EUR 800 million).

Paragraph (b) – Merger between two or more Entities, or an Entity and a Group.

24. Paragraph (b) addresses two general scenarios that are referred to as a “merger” for GloBE purposes:

(a.) where two single Entities that are not part of a Group are brought together to form a Group and, prior to this merger, only individual (i.e. not consolidated) financial statements were prepared by these entities; and

(b.) where a single Entity that does not prepare consolidated financial statements becomes part of a Group.

25. Paragraph (b) also applies where as part of the same arrangement, two or more Groups merge with one Entity; one Group merges with two or more Entities; and two or more Groups merge with two or more Entities.

26. Paragraph (b) contains two parenthetical labels – target and acquirer – that are intended solely to facilitate the drafting of a complex sentence. It would be incorrect to read the sentence as applying only where an Entity that is not a member of any Group is acquired by another Entity or a Group. The paragraph also applies when an Entity that is not a member of a Group acquires another Entity or a Group. Thus, the acquisition of an MNE Group that was already subject to the GloBE Rules by a stand-alone Entity does not re-start the four-year period for purposes of the revenue threshold on the basis that the UPE of the “new Group” does not have Consolidated Financial Statements for previous years.

27. Paragraph (b) modifies the application of the consolidated revenue threshold in both of these cases by aggregating the combined revenue of the Entity(ies) and Group(s) of a given year for purposes of the four-year revenue test. In the case of two single Entities that come together to form a Group, the revenue of each Entity (as reflected in the financial statements of each of the Entities for the prior Fiscal Years) is aggregated for the purposes of applying the consolidated revenue threshold. In the case of an Entity that joins a Group, the revenue included in that Entity’s financial statements for a given year must be added to the consolidated revenue of the Group for the same year. If the previous fiscal periods do not align, the revenues of the Fiscal Years should be combined by taking the revenues of fiscal periods that end with or within the fiscal period that the Group uses after the Entities come together. For example, an MNE Group that uses a calendar year as its Fiscal Year acquires, on 1 January 2023, an Entity that uses a fiscal period that ends on 30 September as its Fiscal Year. The MNE Group continues to use the calendar year as its Fiscal Year after the acquisition. In this scenario, the revenues of the acquired Entity for the Fiscal Years ending 30 September 2022, 2021, 2020, and 2019 are combined with the revenues of the MNE Group for the four preceding Fiscal Years ending 31 December 2022, 2021, 2020, and 2019. The Entity’s revenues for the period between 1 October 2022 and 31 December 2022 (which would have been included in the financial statements of that Entity in the following year if it was not acquired) are not included in the computation of the MNE Group’s revenue for the calendar years 2022 or 2023.

28. As with paragraph (a), the deeming rule in paragraph (b) is applied to each of the four Fiscal Years prior to the tested Fiscal Year in order to determine whether the newly formed Group falls within the scope of the GloBE Rules. This means that if the combined revenue in two out of the four Fiscal Years prior to the tested Fiscal Year equals or exceeds EUR 750 million, then the consolidated revenue threshold in Article 1.1 is met and the MNE Group is subject to the GloBE Rules in the tested Fiscal Year. In practice, this rule is irrelevant where the acquiring MNE Group meets the revenue threshold under Article 1.1 in the Fiscal Year in which the merger takes place.

29. The following example illustrates the first scenario. Assume from Fiscal Years 1 to 4, A Co and B Co (located in different jurisdictions) were single Entities and that A Co reported revenue of EUR 600 million and B Co reported revenue of EUR 400 million in each of those years. In Fiscal Year 5, A Co acquires B Co, creating a Group and an MNE Group which reports a consolidated revenue of EUR 1 billion in its Consolidated Financial Statements of Fiscal Year 5. In this case, the recently formed AB Group is required to apply the GloBE Rules in Year 5 (i.e. the tested Fiscal Year) because their combined revenue met the EUR 750 million threshold in at least two of the prior 4 Fiscal Years.

30. The next example illustrates the second scenario addressed by paragraph (b). Assume A Group reported consolidated revenue of EUR 500 million in each of Fiscal Years 1 to 4. In Fiscal Year 5, A Group acquired an Entity with reported revenue of EUR 800 million in each of Fiscal Years 1 to 4. In this case, the consolidated revenue threshold is met for Fiscal Year 5 (i.e. the tested Fiscal Year) because the A Group is deemed to have met the EUR 750 million consolidated revenues test by virtue of the acquired Entity’s revenue of EUR 800 million in at least two of the preceding four years.

Paragraph (c) – Demerger

31. Paragraph (c) covers the case where an MNE Group demerges into two or more Groups during a Fiscal Year. This paragraph applies where the MNE Group is within the scope of the GloBE Rules in the Fiscal Year that the demerger takes place. Paragraph (c) applies irrespective of the form of the demerger provided that it falls within the definition of a demerger in Article 6.1.3. Paragraph (c) is applied separately to each of the demerged Groups.

32. The rule in paragraph (c) is different from the rules in the previous paragraphs. Paragraphs (a) and (b) complement Article 1.1 by determining the amount of consolidated revenue for each of the four Fiscal Years prior to the tested Fiscal Year. Paragraph (c), in contrast, is a standalone revenue threshold test that applies in addition to the test in Article 1.1.1. The rules in paragraph (c) are intended to ensure that each Group resulting from the demerger of the in-scope MNE Group, that meet the revenue threshold in the Fiscal Year ending after the demerger, remain subject to the GloBE Rules even if the demerged Group does not meet the requirements of Article 1.1 in that year.

33. Paragraph (c) is divided into two subparagraphs. Subparagraph (i) covers the first tested Fiscal Year after the demerger, while subparagraph (ii) covers from the second to the fourth tested Fiscal Years after the demerger. The rules apply separately to each of the Groups that were formed from or remained following the demerger (each, a demerged Group).

• First year following the demerger

34. Under subparagraph (i), the consolidated revenue threshold set out in Article 1.1 is deemed to be met by a demerged Group if the demerged Group has annual revenues of EUR 750 million or more in the first tested fiscal year after the demerger. This means that instead of applying a test that considers previous fiscal years, this rule is triggered for each demerged Group that has annual revenues of EUR 750 million or more in the Fiscal Year that is being tested. Note that this paragraph only applies to demerged Groups. The sale of a controlling interest in a single Entity will therefore not fall within the scope of paragraph (c).

35. Sub-paragraph (i) applies to a Group in the Fiscal Year “ending after the demerger”. For example, Assume Group A has a Fiscal Year that is the same as the calendar year. The UPE of Group A distributed all of the shares of subgroup B to its shareholders in 30 June of Year 1. This distribution will be considered a demerger under Article 6.1.3 and result in the creation of Group B. The Fiscal Year of Group A ends on the 31 of December of Year 1. In this case, paragraph (i) tests Group A’s consolidated revenue for Year 1 because it is the first tested Fiscal Year that ends after the demerger. Paragraph (i) also tests Group B’s consolidated revenue for its first tested Fiscal Year that ends after the demerger. Thus, if Group B adopts or retains the calendar year as its Fiscal Year, paragraph (i) will apply to its Fiscal Year ending 31 December of Year 1 because that is Group B’s first tested year that ends after the demerger. However, because Group B’s first tested Fiscal Year is composed of a period other than 12 months, then the EUR 750 million threshold has to be adjusted proportionally consistent with Article 1.1.2.

• Second and subsequent years following demerger

36. Paragraph (ii) provides the rule for the second to fourth tested Fiscal Years after a demerger. It states that the consolidated revenue threshold set out in Article 1.1 is deemed to be met by a demerged Group if it has annual revenues of EUR 750 million or more in at least two Fiscal Years following the demerger. As for paragraph (i), this rule takes into account the annual revenue of the Fiscal Year that is being tested. For example, a demerged Group meets the test in the second Fiscal Year (i.e. the tested Fiscal Year), if it has consolidated revenues of EUR 750 million or more in Fiscal Years 1 and 2 following the demerger.

Article 6.1.2.

37. Article 6.1.2 sets out the definition of merger that is used in applying the rules in Article 6.1.1. The definition of “merger” applies only for the purposes of Article 6.1.1 and is broader than the commonly understood meaning of merger. The term applies to any merger or acquisition transaction that results in all or substantially all of the Entities of the two or more Groups being brought under common control. Article 6.1.2 is divided into two paragraphs with two different definitions. The rule in Article 6.1.1 (a) or (b) will apply if either one of the definitions in Article 6.1.2 applies.

Paragraph (a)

38. Paragraph (a) states that a merger is an arrangement in which all or substantially all of the Group Entities involved are brought under common control to form a combined Group. The form of the merger transaction is not relevant for purposes of paragraph (a) as long as the common control conditions are met. For example, it applies where a Group is acquired by another Group in an all-cash transaction or where two separate Groups are brought under the control of a new UPE. The definition requires that “all or substantially all” of the Entities that are the members of the separate Groups become members of the merged Group. It would not apply, for example, where a Group sells all the Entities that make a business division unless that division represented virtually all the business of the selling Group.

Paragraph (b)

39. Under paragraph (b), a merger includes an arrangement where a single Entity (which is not a member of any Group) is brought under common control with another single Entity or Group such that it creates a combined Group. This definition is relevant for purposes of Article 6.1.1 (b) as it covers the situation in which a standalone Entity acquires another standalone Entity to become a Group for the first time. It also encompasses the situation in which a single Entity acquires a Group, and where a Group acquires an Entity that is not part of another Group.

40. Paragraphs (a) and (b) both require the creation of a new “combined Group”. The definition of the term “Group” under Article 1.2.2 has to be taken into account for determining whether a new Group is formed. For example, the definition is not met where two Groups were acquired by an Investment Fund that is not required to consolidate them on a line-by-line basis. In this case, the Investment Fund and the two Groups do not form a “combined Group” because the assets, liabilities, income, expenses and cash flows of their Entities are reported under different Consolidated Financial Statements.

Article 6.1.3.

41. Article 6.1.3 defines the term “demerger” for purposes of Article 6.1.1(c). A demerger is defined as any arrangement where the Group Entities of a single Group are separated into two or more standalone Groups. After a demerger, the disposed Group Entities are no longer consolidated on a line-by-line basis by the same UPE but continue to be consolidated on a line-by-line basis by two or more UPEs of different MNE Groups from the date of the demerger.

42. This definition relies on the consolidation test and the definition of a Group included in Articles 1.2.2 and 1.2.3. Therefore, whether a Group is separated into two or more Groups depends on whether each separated collection of Entities meets the definition of a Group and has its own Consolidated Financial Statements as defined by Article 10.1.

43. As a general rule, the disposal of a single Constituent Entity is not a demerger because after the disposal it would become a standalone Entity and not a Group. However, where the disposed Constituent Entity has a PE in another jurisdiction, then the standalone Entity and its PE are considered a Group in accordance with Article 1.2.3 and therefore, a new Group would exist for the purposes of Article 6.1.3. This definition does not cover the situations in which an MNE Group disposes of one or more Constituent Entities and the acquirer is another Group. In these cases, the disposed Entities are joining an existing Group, not creating a new one. A sale of one or more Constituent Entities to another MNE Group may, however, fall within the definition of a merger in Article 6.1.2(a) or (b) with respect to the acquiring MNE Group, where, for example, the sale of those Entities represented virtually all the business of the selling Group.