Article 9.3.1

15. Article 9.3.1 provides an exclusion from the UTPR for MNE Groups that meet the requirements set out in Article 9.3.2. More specifically, the exclusion from the UTPR is effected by reducing to zero any amount of Top-up Tax that would otherwise be taken into account for determining the UTPR Top-up Tax Amount in accordance with Article 2.5.1.

16. Article 9.3.1 further provides that this exclusion applies notwithstanding the requirements otherwise provided in Chapter 5, such as the requirement to determine the ETR of a jurisdiction and compute the Top-up Tax due, if any. This means that there is no need for the MNE Group to compute the ETR of its Constituent Entities and no need to calculate the amount of Top-up Tax that would have been due if the exclusion did not apply.

17. The exclusion provided in Article 9.3.1 applies on an annual basis. Provided the conditions set in Article 9.3.2 are met for a Fiscal Year, the exclusion provided in Article 9.3.1 applies for that Fiscal Year.

Article 9.3.2

18. Article 9.3.2 provides two criteria for determining whether an MNE Group is in the initial phase of its international activity. Both of the criteria must be met for a given Fiscal Year in order for the MNE Group to qualify for the exclusion for that Fiscal Year.

19. Paragraph (a) provides that the exclusion in Article 9.3.1 only applies to MNE Groups that have Constituent Entities located in no more than six jurisdictions for a Fiscal Year. Thus, an MNE Group can qualify for the exclusion if it has Constituent Entities in up to five jurisdictions outside the Reference Jurisdiction (see Article 9.3.3 for the definition of the Reference Jurisdiction). For this purpose, there is no requirement that the five other jurisdictions are the same five jurisdictions over the five-year period during which the MNE Group can benefit from the exclusion. The location of a Constituent Entity is determined by applying the rules provided in Article 10.3. Stateless Constituent Entities are not located in any jurisdiction, so those entities are not counted for the purposes of determining the number of jurisdictions in which the MNE Group operates under these rules.

20. Paragraph (b) provides that the exclusion in Article 9.3.1 only applies to MNE Groups that have a limited amount of tangible assets outside the Reference Jurisdiction, i.e. the jurisdiction where they conduct the majority of their substantive activities when the MNE Group originally comes within the scope of the GloBE Rules. More specifically, paragraph (b) provides that MNE Groups qualify for the exclusion only if the sum of the Net Book Values of Tangible Assets of all Constituent Entities located in all jurisdictions other than the Reference Jurisdiction (defined under Article 9.3.3) does not exceed EUR 50 million for the Fiscal Year. As provided in Article 10.1, the Net Book Value of Tangible Assets means the average of the beginning and end of year values of Tangible Assets after taking into account accumulated depreciation, depletion, and impairment, as recorded in the financial statements. For purposes of Article 9.3.2(b), all Tangible Assets, as defined in Article 10.1 are taken into account, provided they are held by the Constituent Entities of the MNE Group that are located in the jurisdictions other than the Reference Jurisdiction over the relevant period. Article 9.3.2(b) provides that once the value of tangible assets held in jurisdictions other than the Reference Jurisdiction exceeds EUR 50 million, then the exclusion from the UTPR no longer applies. Tangible Assets of Stateless Constituent Entities are considered held by Constituent Entities located in a jurisdiction other than the Reference Jurisdiction for the purposes of assessing the EUR 50 million threshold, other than to the extent that the MNE Group demonstrates that those Tangible Assets are physically located in the Reference Jurisdiction.

21. For purposes of Article 9.3.2(b), Tangible Assets of Investment Entities that are not Excluded Entities are not taken into account because those entities are excluded from the application of the UTPR and the location of Investment Entities that are not Excluded Entities is not taken into account for purposes of determining the number of jurisdictions in which the MNE Group has Constituent Entities under Article 9.3.2(a). Tangible Assets held by a JV or its JV Subsidiaries are also not taken into account because those are not Constituent Entities for the purposes of Article 9.3 and are not required to apply the UTPR and the location of a JV and of its JV Subsidiaries is not taken into account for purposes of determining the number of jurisdictions in which the MNE Group has Constituent Entities. However, the Tangible Assets held by Minority-Owned Constituent Entities are taken into account for purposes of this rule and the location of Minority-Owned Constituent Entities is taken into account for purposes of determining the number of jurisdictions in which the MNE Group has Constituent Entities.

Article 9.3.3

22. Article 9.3.3 provides the definition for the Reference Jurisdiction for purposes of Article 9.3.2. The Reference Jurisdiction of an MNE Group is the jurisdiction where the MNE Group has the highest total value of Tangible Assets, where the total value of Tangible Assets in a jurisdiction is the sum of the Net Book Values of all Tangible Assets of all the Constituent Entities of the MNE Group that are located in that jurisdiction. For purposes of Article 9.3.3, all Tangible Assets, as defined in Article 10.1 are taken into account, provided they are held by the Constituent Entities of the MNE Group over the relevant period. As provided in Article 10.1, the Net Book Value of Tangible Assets means the average of the beginning and end values of Tangible Assets after taking into account accumulated depreciation, depletion, and impairment, as recorded in the financial statements.

23. For purposes of Article 9.3.3, the Reference Jurisdiction is identified in respect of the first Fiscal Year for which the MNE Group originally comes within the scope of the GloBE Rules and remains unchanged over the five-year period during which the MNE benefits from the exclusion.

Article 9.3.4

24. Article 9.3.4 provides that the exclusion in Article 9.3.1 only applies for a period of five years after the MNE Group has come within the scope of the GloBE Rules. MNE Groups are in scope of the GloBE Rules when they meet the requirements provided in Article 1.1. Therefore, the five year period runs from when the MNE Group first meets the requirements of Article 1.1 and includes the first Fiscal Year for which the MNE Group is subject to the GloBE Rules. Assume, for example, an MNE Group first meets the requirements provided in Article 1.1 for its Fiscal Year beginning 1 January 2025. That MNE Group does not benefit from the exclusion provided under Article 9.3.1 for any Fiscal Year that begins after 31 December 2029.

25. Article 9.3.4 further provides that for MNE Groups that are in scope of the GloBE Rules when they come into effect, the period of five years will start at the time the UTPR rules come into effect. Under this scenario the MNE Group will be in scope of the UTPR rules as from the first year when those rules come into effect. The legislative processes in different Inclusive Framework jurisdictions may progress at different rates such that some jurisdictions are able to legislate the GloBE Rules more expeditiously than others. Nevertheless, Inclusive Framework Members have agreed that the earliest the UTPR will come into effect in 2024. Accordingly, an MNE Group that meets the requirements provided in Article 1.1 for a Fiscal Year that begins before 1 January 2024 would not qualify for the exclusion provided under Article 9.3.1 in any Fiscal Year that begins after 31 December 2028. This is the case irrespective of whether any of the jurisdictions in which the Constituent Entities are located have adopted a UTPR that is effective as of the beginning of 2024.

26. In any case, the five-year period provided under Article 9.3.4 shall not be suspended by any circumstance. For instance, if the MNE Group meets the requirements provided in Article 1.1 for a Fiscal Year and its revenues decline in subsequent years such that and the MNE Group is not in scope of the GloBE Rules for any subsequent year, the five-year period continues to run.

Article 9.3.5

27. Article 9.3.5 contains an optional provision that allows the Reference Jurisdiction to use the UTPR to defend its tax base from a tax planning opportunity that may arise under the exclusion for MNEs in the initial phase of their international activity. Because the Article 9.3.1 exclusion treats all of the jurisdictions in which the MNE Group operates as having zero Top-up Tax, a largely domestic Group could establish a new UPE in a jurisdiction that does not have a Qualified IIR and then the Parent Entity could extract value from the domestic Group without being subject to minimum taxation under the UTPR. This gap in the coverage of the GloBE Rules could also provide a competitive advantage for UPEs located in a non-GloBE jurisdiction seeking to acquire MNE Groups.

28. To thwart this potential abuse of the Article 9.3.1 exclusion, jurisdictions that introduce a UTPR may consider providing an optional exception to Article 9.3.1 that would exclude the operation of Article 9.3 in that jurisdiction where it is the Reference Jurisdiction in respect of an MNE Group that is in the initial phase of its international activity. The reason for including such an option in Article 9.3 for those jurisdictions that choose to implement the GloBE Rules would be to provide a level playing field between locally-headquartered MNE Groups that are in the initial phase of their international activity (and would therefore be subject to the IIR in respect of their operations in Low-Tax Jurisdictions) and those MNE Groups in the initial phase of their international activity that maintain a UPE outside, but the major part of their operations within, that jurisdiction. An option for the Reference Jurisdiction to apply the UTPR to such Groups would help to limit the risk of locally-headquartered MNE Groups inverting out of the Reference Jurisdiction to escape the GloBE Rules.

29. Jurisdictions that wish to limit the operation of Article 9.3 in this way may consider adding an optional provision (Article 9.3.5) which provides that Article 9.3.1 shall not apply where the implementing Jurisdiction is the Reference Jurisdiction of the MNE Group. This will have the effect of preserving the ability of the Reference Jurisdiction to make an adjustment under the UTPR in respect of any amount of Top-up Tax that arises in a Low-Tax Jurisdiction. In order to allocate the full amount of Top-up Tax arising in those jurisdictions to the Reference Jurisdiction, Article 9.3.5(b) provides that the UTPR Percentage of the jurisdictions other than the Reference Jurisdiction is deemed to be zero.

30. Jurisdictions that implement Article 9.3.5 may also consider limiting the application of the UTPR under this paragraph to the Top-up Tax Amount that arises in Low-Tax Jurisdictions other than the Reference Jurisdiction. Article 9.3.5(a) achieves this by reducing the Top-up Tax Amount of a Low-Taxed Constituent Entity that would be taken into account under Article 2.5.1 to zero if that Low-Taxed Constituent Entity is located in the Reference Jurisdiction.

31. The option set out in Article 9.3.5 operates as an exception from the UTPR exclusion provided under Article 9.3 and therefore is subject to the general time limit provided in Article 9.3.4.