9. The design of the safe harbour is focused on bright-line rules that use readily available and easily verifiable data rather than seeking to achieve a high degree of precision by undertaking the full GloBE calculations for a jurisdiction. The Transitional CbCR Safe Harbour operates through the use of simplified jurisdictional revenue and income information contained in an MNE’s Qualified CbC Report, and jurisdictional tax information contained in an MNE’s Qualified Financial Statements. It applies to jurisdictions in which Constituent Entities of the MNE are located (“Tested Jurisdiction”). The operation of the safe harbour works as follows:

• The MNE Group’s Total Revenue and Profit (Loss) before Income Tax for each jurisdiction is extracted directly from the Qualified CbC Report. If a Tested Jurisdiction produces revenue and income that meet the de minimis test, then the Tested Jurisdiction qualifies for the safe harbour.
• The Tested Jurisdiction can also qualify for the safe harbour if its ETR is equal to or greater than the Transition Rate. The ETR is calculated using Profit (Loss) before Income Tax data from CbCR and the income tax expense reflected in the Qualified Financial Statements. The income tax expense used for the ETR test therefore includes deferred items and does not require any adjustments under GloBE (such as the allocation of CFC or Main Entity taxes), other than the removal of taxes which are not Covered Taxes and Uncertain Tax Positions.
• The Tested Jurisdiction can qualify for the Transitional CbCR Safe Harbour if it meets the routine profits test. Under this test, an MNE would calculate the jurisdiction’s SBIE in accordance with the GloBE Rules (including the Commentary and any Agreed Administrative Guidance) and compare that to the jurisdiction’s Profit (Loss) before Income Tax as reported in the MNE’s Qualified CbC Report. If a Tested Jurisdiction’s SBIE amount is equal to or exceeds its Profit (Loss) before Income Tax, it means the Tested Jurisdiction is less likely to have Excess Profits on which Top-up Tax could be applied, and the Tested Jurisdiction would qualify for the safe harbour.

10. The Transitional CbCR Safe Harbour applies only where the MNE Group prepares its CbC Report using Qualified Financial Statements (discussed further below). Furthermore, the safe harbour does not apply in certain cases identified further in this chapter where the CbC Report as a whole does not provide a reliable indication of the income of the MNE Group. For example, the safe harbour does not apply where the CbC Report does not include all of the information of a Multi-Parented MNE Group. The safe harbour is also limited to a transitional period that applies to Fiscal Years beginning on or before 31/12/2026 but not including a Fiscal Year that ends after 30/6/2028.

11. If an MNE Group has not applied the Transitional CbCR Safe Harbour with respect to a jurisdiction in a Fiscal Year in which the MNE Group is subject to the GloBE Rules, the MNE Group cannot qualify for that safe harbour for that jurisdiction in a subsequent year. Further detail on the operation of the Transitional Period, including the application of the transition rules under Article 9.1, is set out below.

12. To access the safe harbour, the MNE Group would need to comply with the filing requirements in the GloBE Information Return that are specific to the Transitional CbCR Safe Harbour. For example, a Tested Jurisdiction that would like to apply the routine profits safe harbour would need to include, in its GloBE Information Return, the same information for its SBIE calculation that it would otherwise be required to include if it performed a full SBIE calculation under Article 5.3 of the GloBE Rules.

13. The Transitional CbCR Safe Harbour uses CbCR and financial account information as proxies for determining whether Tested Jurisdictions are likely to have an ETR that is at or above the minimum rate, income and revenue that is less than the de minimis threshold, or income that is equal or less than the SBIE amount. Given that they are proxies, the CbCR or financial accounting information may include extraneous items that are out of scope from the GloBE Rules (for example, the income of certain Excluded Entities). However, once it has been determined that a Tested Jurisdiction meets the ETR test, de minimis test or routine profits test, then any Constituent Entity that is located in the qualifying Tested Jurisdiction will qualify for the safe harbour in accordance with Article 8.2.

GloBE Income (Loss) and Revenue

14. The Transitional CbCR Safe Harbour relies on CbCR data as the basis for calculating an MNE’s revenue and income on a jurisdictional basis. Because the GloBE Rules and the rules for CbCR have a similar scope, it is expected that MNEs that are subject to the GloBE Rules will generally already be collecting CbCR information. Furthermore, the rules for identifying Constituent Entities and allocating income to a jurisdiction under CbCR are broadly in line with those in the GloBE Rules. On this basis, the CbCR serves as a reasonable proxy for excluding these low-risk jurisdictions from the information collection and compliance requirements of the GloBE Rules. Allowing a CbCR-based safe harbour is expected to provide MNEs with significant compliance savings and a welcome degree of certainty during the Transition Period.

15. The Transitional CbCR Safe Harbour uses the CbC Report as a risk assessment tool to determine whether a top-up tax liability is likely to arise in accordance with the GloBE Rules. The CbC Report must not be used to compute a GloBE tax liability. If the conditions of the safe harbour are not met, then the general rules apply, and any potential liability to Top-up Tax must be computed under the ordinary GloBE Rules. This use of the CbC Report is consistent with the Final Report on Action 13.

Qualified Financial Statements

16. Concerns as to the variability in the quality of the underlying data used to prepare a CbCR may be addressed by limiting an MNE’s qualification for the safe harbour to those cases where the MNE prepares a Qualified CbC Report. A Qualified CbC Report is one prepared using Qualified Financial Statements.

17. Qualified Financial Statements are defined as the accounts used to prepare the Consolidated Financial Statements of the UPE (which mirror the requirement under Article 3.1.2), or separate financial statements of each Constituent Entity provided they are prepared in accordance with either an Acceptable Financial Accounting Standard, or if the information contained in such statements is reliable, another Authorised Financial Accounting Standard. The latter case is similar to the rule provided in Article 3.1.3 of the Model Rules except that it does not require to test whether there are permanent differences of EUR 1 million that arise from the application of the standard.

18. MNE Groups may have Constituent Entities which are included in the scope of GloBE but are not included in an MNE Group’s Consolidated Financial Statements on a line-by-line basis solely due to size and materiality grounds (see Article 1.2.2 of the GloBE Rules). If the Constituent Entities are not consolidated and do not have separate financial statements prepared in accordance with either an Acceptable Financial Accounting Standard or an Authorised Financial Accounting Standard, they will not meet the requirement set forth under paragraph a or b of the definition of Qualified Financial Statements. In this case, paragraph c of the definition of Qualified Financial Statements allows the MNE Group to use the same financial accounts of such Constituent Entities that are used to prepare the MNE Group’s CbC Report.

19. Notwithstanding the requirement to use Qualified Financial Statements, it is recognized that there may be some significant differences between the determination of jurisdictional revenue and profit under CbCR and GloBE. In designing this safe harbour, however, Inclusive Framework members have balanced these concerns against the need for simplicity and the preference for safe harbours that use bright line rules and are based on existing data. Inclusive Framework members consider these factors to be particularly important in the initial years of implementation, when the GloBE Rules are being introduced and MNEs and tax administrations are coming to terms with implementation and building the requisite data collection and reporting systems. Furthermore, many of the rules for calculating income in CbCR are broadly in line with those in the GloBE Rules. Where differences exist, any adjustment to align outcomes would generally be one that could go both ways, meaning that such differences do not give rise to a systemic risk that undermines the integrity of the GloBE Rules. Reliability risks are also mitigated due to the transitional nature of the safe harbour and a buffer on ETR.

Covered Taxes

20. As described previously, income is extracted from the Profit (Loss) before Income Tax line of a Qualified CbC Report. Although Income Tax Paid (on Cash Basis) and Income Tax Accrued (Current Year) are both reported in an MNE’s CbCR, neither of these measures are considered reliable for the purposes of the Transitional CbCR Safe Harbour. The measure of taxes the Inclusive Framework has chosen for the purposes of the safe harbour is income tax expense as recorded in a Constituent Entity’s financial accounts, provided that such Constituent Entity’s income is included in the CbC Report but does not include taxes that are not Covered Taxes as described in Article 4.2.2. Income tax expense includes all below-theline tax expenses (e.g., the zakat). Using income tax expense from Qualified Financial Statements is not necessarily adding another source of data because as described above, the MNE would already have used this source of data to prepare its Qualified CbC Report.

21. Using income tax expense for the Simplified ETR calculation means including deferred taxes in the ETR numerator. Including deferred taxes aligns with the design of the GloBE Rules because it recognizes the impact of timing differences. The GloBE Rules require making certain adjustments to deferred tax expense (i.e., the net movement of deferred tax liabilities and deferred tax assets), which can give rise to additional complexity in the determination of the GloBE ETR. However, for the transitional period, it is recognized that such adjustments can be disregarded except for uncertain tax positions.

22. Uncertain tax positions can be material and can overstate a jurisdiction’s ETR in comparison to GloBE. Removing uncertain tax positions from the income tax expense does not increase the compliance burden of the MNE Group since the income tax expense and uncertain tax positions are recorded in distinct line items in an MNE Group’s trial balances that are used to prepare its Qualified Financial Statement and accompanying notes. Income tax expense before adjusting for uncertain tax positions is also mathematically equivalent to Income Tax Accrued (Current Year) plus deferred tax expenses1 , and again both items are readily available in an MNE’s Qualified CbC Report and Qualified Financial Statements.

Applicable tests

23. In order to qualify for the Transitional CbCR Safe Harbour, a Tested Jurisdiction needs to pass at least one of the following tests: (a) de minimis test; (b) simplified ETR test; or (c) routine profits test. This section describes the operation of these tests.

De minimis test

24. The De minimis test is similar to the De Minimis Exclusion in Article 5.5 of the GloBE Rules, which applies if:

• the Average GloBE Revenue of a jurisdiction is less than EUR 10 million; and
• the Average GloBE Income is less than EUR 1 million or the jurisdiction has an Average GloBE Loss.

25. In the case of the Transitional CbCR Safe Harbour, the test works in the same way except that it only considers Total Revenue and Profit (Loss) before Income Tax of the current year as reflected in the CbC Report. This test removes the need to calculate CbCR Revenue and Income over multiple years and would extend the benefit of the safe harbour to those MNEs that have previously not been preparing their financial accounts based on standards set forth in Article 3.1 of the GloBE Rules but have switched to meet such standards. Note that the condition in subparagraph (b) is met when the Tested Jurisdiction has a loss.

26. An exclusion to the de minimis test applies in the case of Entities that are Constituent Entities by virtue of Article 1.2.2 (b) (i.e., Entities held for sale). Where the Constituent Entities of an MNE Group in a jurisdiction include an Entity held for sale, that jurisdiction cannot rely on the de minimis test where the sum of the total Revenue of those Entities when combined with the total CbCR Revenue in that jurisdiction (as reported in the MNE’s Qualified CbC Report) equals or exceeds EUR 10 million. This rule operates as an exclusion from the de minimis test (rather than an adjustment) that is intended to prevent an MNE Group from relying on the de minimis test when it holds Entities in that jurisdiction for sale that have revenues that are large enough to have prevented the MNE from relying on the de minimis exclusion if those Entities had been included in the consolidation.

Simplified ETR test

27. The Simplified ETR test mirrors the mechanics of the GloBE Rules. The MNE Group would need to compute the ETR of a jurisdiction by dividing the jurisdiction’s Simplified Covered Taxes by the jurisdiction’s Profit (Loss) before Income Tax as reported on the MNE’s Qualified CbC Report. The jurisdiction’s Simplified Covered Taxes is the aggregate Simplified Covered Taxes of the Constituent Entities resident in that jurisdiction for CbCR purposes.

28. If the ETR of the jurisdiction is equal to or greater than the Transition Rate, then the Tested Jurisdiction would qualify for the safe harbour. If the ETR of the jurisdiction is below the Transition Rate, the Tested Jurisdiction would not qualify for the safe harbour and the jurisdictional ETR is disregarded for purposes of the provisions of the GloBE Rules. For example, if the ETR of a jurisdiction is 10% based on the Transitional CbCR Safe Harbour calculations, then such percentage cannot be used for purposes of determining the Top-up Tax Percentage in accordance with Article 5.2.1 of the Model Rules. The MNE Group would need to undertake the GloBE calculations or benefit from the simplified calculations under the Permanent Safe Harbour. The Transition Rate is different for each of the Fiscal Years in which the Transition CbCR Safe Harbour applies. The Transition Rate is 15% for Fiscal Years beginning in 2023 and 2024, 16% for Fiscal Years beginning in 2025, and 17% for Fiscal Years beginning in 2026.

Routine profits test

29. The routine profits test compares a Tested Jurisdiction’s SBIE amount under the GloBE Rules to such jurisdiction’s Profit (Loss) before Income Tax as reported in such MNE’s Qualified CbC Report. If a jurisdiction’s SBIE amount equals or exceeds its Profit (Loss) before Income Tax, it means that it is likely that little (or no) excess profits arise in such jurisdiction, and the Tested Jurisdiction would qualify for the safe harbour. For purpose of the Transitional CbCR Safe Harbour, the SBIE shall be computed in accordance with Article 5.3 of the GloBE Rules. The SBIE amount computed for purposes of the routine profit test does not take into account the payroll and tangible assets of Entities that are not Constituent Entities under the CbCR (e.g., Entities held for Sale) or under GloBE (e.g., Excluded Entities). If the Constituent Entity is located in different jurisdictions under CbCR and GloBE, its payroll and tangible assets are excluded from the SBIE amount for the routine profit test of both jurisdictions.

30. A Tested Jurisdiction with a loss or zero profits will not have income that exceeds the routine profits amount, and therefore will always meet the routine profits test. It will not be necessary for the MNE to calculate the jurisdiction’s SBIE in these circumstances. This outcome mirrors the outcome under Article 5.1 of the GloBE Rules, where an ETR computation is not necessary if a Tested Jurisdiction does not have any Net GloBE Income.

31. This test would benefit MNE Groups that utilize significant labour or tangible assets by identifying jurisdictions with ample substance compared to their profit and excluding such MNE Groups from having to perform full GloBE calculations for such jurisdictions.

Transition Period

32. The purpose of the Transition Period is to provide relief to MNE Groups in respect of their GloBE compliance obligations during the initial years that the rules are being implemented. In practice, it is expected that MNE Groups with a Fiscal Year that begins in 2024 will be subject to the IIR in that Fiscal Year and the UTPR one year later in the Fiscal Year beginning in 2025. This means that for most MNE Groups, the Transition Period will provide three Fiscal Years of compliance relief for the IIR and two Fiscal Years of compliance relief for the UTPR. The safe harbour would only apply during the Transitional Period (i.e., beginning on or before 31/12/2026 but not including a Fiscal Year that ends after 30/6/2028). At the end of the Transition Period, the safe harbour would expire and no longer be available. The Transitional CbCR Safe Harbour is available only for a set period of time (as opposed to being available for X years after a jurisdiction implements or an MNE becomes subject to the GloBE Rules). This facilitates a coordinated application of the GloBE Rules between jurisdictions because MNEs would be subject to the same Transition Period regardless of when a jurisdiction introduces the rules.

33. The policy intent of the Transitional CbCR Safe Harbour is to reduce the compliance burden on MNEs during the Transition Period. The safe harbour achieves this by deeming the top-up tax to zero for a Fiscal Year for those jurisdictions that are treated as low-risk in accordance with the terms of the safe harbour. The benefit and policy intent of the Transitional CbCR Safe Harbour would, however, be undermined if the MNE was nevertheless required to perform the full set of GloBE calculations in that jurisdiction for other purposes under the GloBE Rules. An MNE would secure little in the way of compliance benefits from the Transitional CbCR Safe Harbour if it was excluded from the need to perform an ETR calculation in the current year, but it was required to perform the same calculation in order to accurately calculate its GloBE tax liability in a subsequent year. Therefore, during the Fiscal Years in which an MNE qualifies for and applies the Transitional CbCR Safe Harbour in a low-risk jurisdiction, the implementing jurisdiction should apply the GloBE Rules in such a way that the MNE will not be required to undertake a detailed ETR calculation for that jurisdiction until the first Fiscal Year that the Transitional CbCR Safe Harbour no longer applies. This approach will have the following impact on the application of the GloBE Rules:

a.) no Top-up Taxes arise in or with respect to a Fiscal Year in which a Tested Jurisdiction benefits from the Transitional CbCR Safe Harbour, including Additional Current Top-up Taxes (e.g., as a result of applying Article 4.1.5 or from recalculating Top-up Taxes in a subsequent year when the GloBE Rules apply to such Tested Jurisdiction);

b.) the Transition Year referred to in Article 9.1.1 would be the first Fiscal Year in which the relevant Tested jurisdiction no longer qualifies for or applies the Transitional CbCR Safe Harbour;

c.) the transition rule set out in Article 9.1.2 shall continue to apply to the Constituent Entities of that jurisdiction during the Fiscal Years in which a Tested Jurisdiction benefits from the Transitional CbCR Safe Harbour;

d.) the Transition Year referred to in Article 9.1.3 for a disposing Constituent Entity does not include a Fiscal Year in which the Transitional CbCR Safe Harbour applies to the disposing Constituent Entity; and

e.) the GloBE Loss Election with respect to a Tested Jurisdiction can be delayed until that Tested Jurisdiction ceases to qualify for or apply the Transitional CbCR Safe Harbour (i.e., the election has to be made in the first GloBE Information Return that includes the general calculations of the jurisdiction).

34. An MNE that qualifies for the Transitional CbCR Safe Harbour on a jurisdictional basis is still subject to the GloBE Rules and the safe harbour does not discharge the MNE Group from complying with group-wide GloBE requirements. For example, an MNE Group would still need to prepare and file its GloBE Information Return, including the information concerning the application of the Transitional CbCR Safe Harbour in a jurisdiction where applicable. The group-wide transitional relief periods described in Article 9.2 to 9.4 of the GloBE Rules would not be extended as a result of certain Tested Jurisdictions qualifying for the Transitional CbCR Safe Harbour.

35. If an MNE Group has not applied the Transitional CbCR Safe Harbour with respect to a jurisdiction in a Fiscal Year in which it is subject to the GloBE Rules, the MNE Group cannot qualify for that safe harbour for that jurisdiction in a subsequent year (“once out, always out” approach).

36. This once out, always out approach does not apply when the MNE Group did not have Constituent Entities located in a jurisdiction in a previous Fiscal Year. For instance, an MNE Group is subject to the GloBE Rules in year 2023. In that year, the MNE Group has no Constituent Entities located in Jurisdiction X. In year 2024, it incorporates a Constituent Entity in that jurisdiction. In this case, the MNE Group could still access the Transitional CbCR Safe Harbour with respect to that jurisdiction in year 2024.

37. If, upon audit, it is determined that the taxpayer did not apply the Transitional CbCR Safe Harbour correctly, and a jurisdiction should not have benefited from the Transitional CbCR Safe Harbour for a particular Fiscal Year, the GloBE Rules would apply fully for that and any subsequent Fiscal Year.

38. Whether a Constituent Entity qualifies for the Transitional CbCR Safe Harbour depends on in which jurisdiction it is located under the GloBE Rules. For example, if a Constituent Entity is resident in a qualifying Tested Jurisdiction under the CbC rules, but that Constituent Entity is located in a non-qualifying Tested Jurisdiction under the GloBE Rules, that Constituent Entity would not benefit from the Transitional CbCR Safe Harbour.

39. In addition, certain Entities are subject to special GloBE computations. The sections below describe the GloBE and CbCR treatment of many of these Entities, as well as their treatment under the Transitional CbCR Safe Harbour.

Entities or sub-groups that are excluded from CbCR

Joint Ventures and JV Subsidiaries (Article 6.4).

40. In CbCR, Joint Ventures and JV Subsidiaries are not constituent entities of an MNE group because they are reported under the equity method. Under the GloBE Rules, these Entities are treated as Constituent Entities and have a special treatment because their GloBE Income or Loss and Adjusted Covered Taxes is not blended with the Constituent Entities of the main MNE Group. This means that if a Tested Jurisdiction qualifies for the Transitional CbCR Safe Harbour, extending the benefit to Joint Ventures and JV Subsidiaries would be inappropriate because the computations were made not taking into account such Entities.

41. However, disallowing access to JVs and JVs Subsidiaries from the Transitional CbCR Safe Harbour would seem counter intuitive given the additional difficulties an MNE Group may have in applying the GloBE Rules to these Entities owing to the fact that their income, expenses, assets, liabilities and cash flows are not consolidated on a line-by-line basis. Therefore, an additional measure is needed to allow JVs and JV Subsidiaries access the Transitional CbCR Safe Harbour.

42. Paragraph 1 of the box above is a special rule that allows Joint Ventures and JV Subsidiaries to access the Transitional CbCR Safe Harbour. This rule allows the same rules for the safe harbour to apply to the JV and JV Subsidiary except that, instead of computing the GloBE Income or Loss based on CbC data, the MNE Group is required to take such information from Qualified Financial Statement data. In other respects, the requirements of the safe harbour would remain the same. For example, Covered Taxes will be equal to the Simplified Covered Taxes that derives from Qualified Financial Statement data. Furthermore, if the JV is a Tax Transparent Entity or subject to a Deductible Dividend Regime (e.g., UPE of a JV Group or a standalone JV), the rules referred below for Flow-through UPEs or UPEs subject to Dividend Distribution Regimes would apply.

43. The safe harbour computations are the same as the general GloBE Rules in the sense that these Entities have to be treated as if they were members of a separate MNE Group. For example, if two Constituent Entities and a Joint Venture are located in the same jurisdiction, then two separate safe harbour computations have to be undertaken. One for the Constituent Entities and the other for the Joint Venture. This includes the computation of the de minimis test where JVs in the jurisdiction would apply a de minimis test and CEs in the same jurisdiction would apply a separate de minimis test.

Entities held for sale (Articles 1.2.2(b) & 1.3.1(a))

44. GloBE is broader than CbCR because it also applies to Group Entities that have been excluded from the Consolidated Financial Statements on the grounds that they are held for sale (see Articles 1.2.2(b) and 1.3.1(a)). Therefore, the income and taxes of Entities held for sale will not be taken into account when determining jurisdictional income or ETR under the safe harbour. Where a Tested Jurisdiction qualifies for the Transitional CbCR Safe Harbour, the question that arises is whether the Constituent Entities that are held for sale should also benefit from that safe harbour notwithstanding the fact that their income and taxes are not included in the CbC Report.

45. The policy rationale that points towards the use of CbC Reports and Financial Statements as a basis for calculating the thresholds under the Transitional CbCR Safe Harbour also points to the conclusion that Entities which are held for sale should qualify for the safe harbour where they are located in a GloBE Safe harbour jurisdiction. These Entities could be either profitable or loss-making or located in high tax or low tax jurisdictions. Therefore, excluding them under the Transitional CbCR Safe Harbour does not necessarily give rise to any systemic risk to the integrity of the GloBE Rules. In the case of Entities with low tax profits, any risk needs to be balanced against the policy objective of providing transitional relief to MNEs to mitigate compliance burdens in the initial years that the rules are being introduced. These challenges are particularly acute in the context of Entities held for sale given that they are not included in the consolidation.

Entities and subgroups that qualify for special treatment under GloBE

• Stateless Constituent Entities

46. Stateless Constituent Entities are subject to separate ETR calculations under GloBE because they are not located in a jurisdiction. For example, a Reverse Hybrid Entity is subject to separate GloBE calculations because it is not located in a jurisdiction. These Entities are excluded from the Transitional CbCR Safe Harbour.

47. This rule has no practical effect for Tax Transparent Entities whose income is 100% allocated to Permanent Establishments or to their Constituent Entity-owners. This is because such Tax Transparent Entities would have no GloBE Income or Loss to be tested under the GloBE Rules.

• Minority-Owned Constituent Entities

48. Minority-Owned Constituent Entities (MOCEs) are subject to a separate jurisdictional ETR calculation in accordance with Article 5.6. This means that under GloBE, the MOCEs are separated from rest of the Constituent Entities located in the same jurisdiction for purposes of the ETR calculation. In other cases, the MOCEs located in a jurisdiction could even be separated into different groups if they belong to separate Minority-owned Subgroups.

49. MOCEs are constituent entities under CbCR because they are fully consolidated and are reported in the jurisdiction where they have their tax residence. However, the concept of a MOCE does not exist in CbCR rules and therefore, the difference between CbCR and GloBE is that in GloBE, “normal” Constituent Entities and MOCEs located in the same jurisdiction are separated into two or more groups for purposes of the ETR calculation. Consistent with the general approach taken to Entities which are held for sale, the existence of a MOCE in a jurisdiction should not impact the eligibility of an MNE’s operations in a jurisdiction for the Transitional CbCR Safe Harbour. As with Entities held for sale, the MOCE could be either profitable or loss-making or high tax or low tax. Therefore, including them within the calculation under the Transitional CbCR Safe Harbour does not necessarily give rise to any systemic risk to the integrity of the GloBE Rules. While the income and taxes of the MOCE will be blended with that of other Group Entities under the Transitional CbCR Safe Harbour, any risk needs to be balanced against the policy objective of providing transitional relief to MNEs in order to mitigate compliance burdens in the initial years that the rules are being introduced. Therefore, MOCEs are not subject to a special treatment under the Transitional CbCR Safe Harbour, which means that if they are located in a jurisdiction that meet the tests, then it should also benefit from the safe harbour.

• Multi-parented MNE Groups (Article 6.5)

50. Multi-Parented MNE Groups are two or more Groups that have been combined into a single group in accordance with the requirements of a Staple Structure or Dual-listed Arrangement as set out in Article 6.5 of the GloBE Rules. Under these rules, a Multi-parented MNE Group is treated as a single MNE Group notwithstanding the separate ownership structure of the different groups.

51. In most cases, it is expected that such MNE Groups would submit a combined CbC Report for the whole Multi-Parented MNE Group based on the same Consolidated Financial Statements used for purposes of GloBE. Under these circumstances, it would be appropriate to apply the Transitional CbCR Safe Harbour because the CbC Report includes the information of all the Constituent Entities in the Multiparented MNE Group.

52. However, in case where different CbC Reports are submitted for each the Groups that compose the Multi-parented MNE Group or where the CbC Report does not include information of one of the Groups or Constituent Entities (because, for example, it does not meet the CbCR standards), then it would not be appropriate to use the CbC Report for purposes of the Transitional CbCR Safe Harbour. For that reason, paragraph 2(b) disallows the application of the safe harbour under these circumstances.

• Tax Neutral UPEs

53. Paragraphs 2 and 3 deal with UPEs subject to tax neutral regimes. Under the GloBE Rules, flowthrough UPEs are subject to special treatment in accordance with Article 7.1, and UPEs subject to Deductible Dividend Regimes are subject to special rules in accordance with Article 7.2. A brief description of these regimes and their treatment under the Transitional CbCR Safe Harbour is described in the next paragraphs.

Flow through UPEs (Article 7.1)

54. Flow-through Entities are subject to special treatment under the GloBE Rules. If a Group Entity is a Tax Transparent Entity, its GloBE Income or Loss and Adjusted Covered Taxes (if any) are allocated to their Constituent Entity-owners (unless they have previously been attributed to a Permanent Establishment). This flow-through treatment does not apply to UPEs because their owners are not Constituent Entities of the MNE Group. Article 7.1 therefore provides an alternative mechanism that allows the GloBE Income of the UPE to be reduced by the amount of income that is allocated to its owners provided that those owners are subject to tax at a rate of at least 15%.

55. Under GloBE, a Flow-through UPE is located in its jurisdiction of creation (see Article 10.3.2(a)). However, under CbCR, a Flow-through Entity is a stateless Entity. This means that under CbCR, the income of a Flow-through UPE will be reported as stateless, while, under GloBE, the income and taxes of a Flow-through UPE would be reported in the jurisdiction where it is created. However, this difference in treatment between CbCR and GloBE will not impact GloBE outcomes where Article 7.1 applies to the Flowthrough UPE.

56. If Article 7.1 applies, and the GloBE Income of the Flow-through UPE is reduced to zero, then CbCR and GloBE would match because both systems would exclude the income of the Entity from the jurisdiction. In these cases, it is appropriate to apply the Transitional CbCR Safe Harbour to the Entities located in the jurisdiction and to exclude the application of the GloBE Rules to the flow-through UPE.

57. If Article 7.1 does not apply (or not all the income of the Flow-through UPE is reduced to zero in accordance with such provision), then the income and taxes recorded for CbCR and GloBE would differ. The GloBE Rules would require the income of the flow-through UPE to be added in the jurisdiction, while CbCR would treat such income as stateless. Under these circumstances, it is not appropriate to apply the Transitional CbCR Safe Harbour to the UPE jurisdiction because the information in the CbC Report would not match. For this reason, paragraph 2 disallows the application of the Transitional CbCR Safe Harbour in this particular case.

58. It is not necessary to exclude the jurisdiction of the Flow-through UPE from the Transitional CbCR Safe Harbour where all the income (loss) of the Flow-through UPE is attributable to a Permanent Establishment, (irrespective of whether such PE is located in the jurisdiction of the Flow-through UPE or a third jurisdiction) where the conditions of Article 7.1.1 of the Model Rules are met. This is consistent with Article 7.1.4 of the GloBE Rules.

UPEs subject to Deductible Dividend Regimes (Article 7.2)

59. Article 7.2 contains a set of rules for UPEs that are subject to Deductible Dividend Regimes. A Deductible Dividend Regime is a tax regime designed to yield a single level of taxation on the owners of an Entity through the allowance of a deduction from the income of the Entity for distributions of profits to the owners. The owners are subject to tax on the dividends and the Entity is subject to tax on the earnings that are not distributed.

60. The objective of Article 7.2 is to avoid understating the ETR of the UPE. This normally happens because the tax deduction on the distribution is not considered as an expense for accounting purposes, and the taxes paid by the UPE’s ownership-interest holders on such distributions are not considered as Covered Taxes because they are not paid by Constituent Entities of the MNE Group. Thus, Article 7.2 corrects this issue by allowing the MNE to reduce the UPE’s GloBE Income by the amount of the Deductible Dividends provided that some conditions are met (e.g., the shareholder is subject to tax on the dividend at a nominal rate of at least 15%).

61. This same problem arises in the context of CbCR because the Profit (Loss) before Income Tax reflects accounting profit and not taxable income. Without any adjustments, the MNE would probably be forced to undertake full GloBE computations for the UPE jurisdiction because the UPE jurisdiction’s ETR would be understated under the Transitional CbCR Safe Harbour as a result of not being able to claim a deduction that would otherwise be granted in accordance with Article 7.2. Thus, to avoid this situation, paragraph 3 of the box above provides the same deduction that would be otherwise granted under Article 7.2. This deduction would be made to the Profit (Loss) before Income Tax of the jurisdiction of the UPE.

62. This benefit would only be available if the conditions of Article 7.2 are met and operates in the same way as in the general rules. This includes providing the exact same information that would otherwise be provided when applying this rule outside the safe harbour and removing the UPE’s taxes from the safe harbour computations in accordance with Article 7.2.2.

Entities subject to Eligible Distribution Tax Systems (Article 7.3)

63. Entities subject to an Eligible Distribution Tax System can be subject to a special treatment under Article 7.3 that allows them to recognize a Deemed Distribution Tax in a Fiscal Year for a tax that would be paid during a later year (during a four-year period). This means that the tax is recognized in a Fiscal Year, but the income tax expense is expected to be reflected in a future Fiscal Year. Article 7.3 is an annual election that applies and affects the ETR of all the Constituent Entities of the jurisdiction.

64. During the Transition Period, in-scope MNE Groups can elect to treat Entities subject to Eligible Distribution Tax Systems for the first Fiscal Year in accordance with Article 7.3 (which applies to all Constituent Entities in a jurisdiction). In such cases, an MNE would first decide whether to apply the Transitional CbCR Safe Harbour to such Constituent Entities. If the Transitional CbCR Safe Harbour is not applied, the MNE would decide whether to apply Article 7.3. Once an MNE elects to apply Article 7.3, it would then not be eligible to apply the Transitional CbCR Safe Harbour to jurisdictions with Constituent Entities subject to Eligible Distribution Tax Systems through the rest of the Transition Period.

65. If the MNE decides not to apply Article 7.3 for the first Fiscal Year, it can access the Transitional CbCR Safe Harbour in a jurisdiction with an Eligible Distribution Tax System under the same conditions as for any other jurisdiction.

Investment Entities and Insurance Investment Entities (Articles 7.4 – 7.6)

66. Investment Entities (including Insurance Investment Entities) that are not treated as tax transparent are subject to special treatment under the GloBE Rules. The default treatment for Investment Entities is set out in Article 7.4, where the Investment Entity is required to calculate its ETR separately from that of the other CEs located in the same jurisdiction. The GloBE Rules further provide the MNE with two alternative methods for treating an Investment Entity’s GloBE Income (Loss) and Adjusted Covered Taxes.

• The MNE can elect to treat the Investment Entity as a Tax Transparent Entity where it qualifies for that treatment under Article 7.5. This election has the effect of allocating the GloBE Income (Loss) and Adjusted Covered Taxes of the Investment Entity to the Constituent Entity-owner; and
• the MNE can elect to exclude the GloBE Income (Loss) of the Investment Entity and to include distributions made by the Entity to be included in the GloBE Income (Loss) of the Constituent Entity-owner. If distributions are not made within a four-year period, the MNE is subject to a Top-up Tax that results from multiplying the portion of the Undistributed Net GloBE Income by 15%.

67. Non-tax transparent Investment Entities are not subject to any special treatment under CbCR. Their Profit (Loss) before Income Tax must be reported in their jurisdiction of tax residence. In some cases, however, Profit (Loss) of the Investment Entity can be reported twice in the CbC Report. This can occur, for example, where the CbC Report is not prepared based on consolidated accounts and where the accounts of the Constituent Entity-owner report investments in the Investment Entity on mark-to-market basis.

68. In order to address these differences between GloBE and CbCR while correctly accounting for Investment Entities under the Transitional CbCR Safe Harbour, the following general approach should be taken in the application of the safe harbour:

• the Investment Entity is excluded from the benefit of the Transitional CbCR Safe Harbour and the MNE Group will apply the ordinary GloBE Rules to determine whether any Top-up Tax arises in respect of the GloBE Income of that Investment Entity, subject to the elections under Articles 7.5 and 7.6; and
• the jurisdictions where the Constituent Entity-owner and the Investment Entity are located continue to be eligible to apply the safe harbour. If those jurisdictions otherwise qualify for the safe harbour, all the Constituent Entities in that jurisdiction would deem their Top-up Tax to be zero except for the Investment Entities that are still subject separate computations.

69. As part of the Investment Entity’s separate GloBE computation, the Filing Constituent Entity can continue to elect to apply the treatment provided under Articles 7.5 or 7.6. This Five-Year Election will be carried over to the years in which the Transitional CbCR Safe Harbour no longer applies. The rules described in the paragraphs above apply equally to Insurance Investment Entities that apply the rules in Articles 7-4 to 7.6.

70. The general rule above is subject to the following qualifications:

• An Investment Entity that does not elect to apply the treatment provided under Articles 7.5 or 7.6. is not required to undertake a separate GloBE calculation where the Investment Entity and its Constituent Entity-owners are located in the same jurisdiction.
• When applying the Transitional CbCR Safe Harbour in the jurisdictions where the Constituent Entity-owner and the Investment Entity are located, the jurisdictional Profit (Loss) before Income Tax should be adjusted as necessary so that the income and associated taxes of the Investment Entity are only taken into account in the owner’s jurisdiction.

71. The first qualification operates as a simplification in that it avoids the need for an Investment Entity to undertake a separate GloBE calculation when the Investment Entity and its owners (and their corresponding income and taxes) are recorded in the same jurisdiction for CbCR purposes. The second qualification avoids the risk of double counting under CbCR by ensuring that all income reported in the CbC Report is recorded only once in the jurisdiction of the owner. In a case where a portion of the Ownership Interests of the Investment Entity are held by owners that are not members of the MNE Group, the Profit (Loss) before Income Tax attributable to such owners are excluded from the Transitional CbCR Safe Harbour computations.

72. Investment Entities are excluded from the benefit of the Transitional CbCR Safe Harbour and the MNE Group applies the ordinary GloBE Rules to determine whether any Top-up Tax arises in respect of the GloBE Income of that Investment Entity (except in the case described in paragraph 6 of the box above). Accordingly, if an Investment Entity elects to apply Article 7.6 to calculate its GloBE ETR then the MNE will still be required to maintain an account for purposes of determining the Undistributed Net GloBE Income in accordance with Article 7.6.3 to Article 7.6.5. Any amount that has not been distributed within the four-year period during or after the Transition Period (i.e., Undistributed Net GloBE Income for the Tested Fiscal Year) would still be subject to a Top-up Tax in accordance with Article 7.6. Furthermore, where an Investment Entity makes a distribution to the Constituent Entity-owner after the end of the Transition Period, those distributions must be included in the GloBE Income (Loss) of the Constituent Entity-owner in accordance with the requirements of that Article. This treatment applies notwithstanding that the underlying income of the Investment Entity was reported in a prior year in the jurisdiction of such owner as part of the Transitional CbCR Safe Harbour.

Treatment of Net Unrealised Fair Value Loss

73. A Net Unrealised Fair Value Loss means all losses, as reduced by any gains, arising from changes in fair value of Ownership Interests (except for Portfolio Shareholdings). The loss element includes impairment losses and any reversals of impairment. These items are excluded from the GloBE Income or Loss computation because these are treated as an Excluded Equity Gain or Loss in accordance with Article 3.2.1 (c) of the GloBE Rules. To the extent that they are reflected in the Profit (Loss) before Income Tax under CbCR, they can cause Profit (Loss) before Income Tax to be underestimated and hence lead to distortive effects when applying the Transitional CbCR Safe Harbour tests.

74. For these reasons, Net Unrealised Fair Value Loss should be excluded from Profit (Loss) before Income Tax of a jurisdiction if such amount exceeds EUR 50 million. No adjustment in respect of Net Unrealised Fair Value Loss shall be made if a Tested Jurisdiction reports a Net Unrealised Fair Value Loss not exceeding EUR 50 million or a net fair value gain (i.e., when fair value gains and reversals of impairments are higher than fair value losses and impairments) with respect to Ownership Interest (except for Portfolio Shareholding). To the extent there is a gain (including a reversal of impairment) from changes in fair value of an Ownership Interest (except for a Portfolio Shareholding) in a Fiscal Year, such gain may offset the loss up to the amount of the loss. For example, if an MNE Group has two investments held in Country X and incurs in the same Fiscal Year both an impairment loss of 80 on Investment A and a reversal of impairment of 80 on Investment B (impairment loss of 80 suffered in a prior year), there is no Net Unrealised Fair Value Loss for the Fiscal Year, as both are included in the Profit (Loss) before Income Tax for that Fiscal Year and there is no net loss resulting from the impairment. No adjustment is made to the numerator of the ETR calculation (i.e., taxes).