Below we outline the main items of this further administrative guidance (Dec 2023 AG), which is the third set of additional administrative guidance after the guidance released in February 2023 (Feb 2023 AG) and July 2023 (July 2023 AG).

1. Purchase price accounting (PPA) adjustments in Qualified Financial Statements 

The Dec 2023 AG provides guidance on when financial accounts that include the effect of PPA adjustments in the computation of Profit (or Loss) before Tax (PBT) are considered Qualified Financial Statements to prepare a Qualified CbC Report.

2. Further Guidance on the Transitional CbCR Safe Harbour

The Safe Harbours and Penalty Relief document was published in December 2022 (Dec 2022 Safe Harbour Document) and some further guidance on determining the Substance-based Income Exclusion (SBIE) was provided in the July 2023 AG (for more information we refer to our tax flash of 19 July 2023.  However, tax administrations and MNE Groups have identified other areas in the Transitional CbCR Safe Harbour that require further clarification. The Dec 2023 AG provides the following clarifications in this respect

3. Administrative Guidance on application of GloBE Rules

The Dec 2023 AG includes further guidance to provide more clarity on the EUR 750m revenue threshold of the GloBE Rules, given the discrepancies between financial reporting practices and the need for certainty and uniformity when applying the GloBE Rules.

In addition, further guidance is provided for issues related to mismatches between the Fiscal Years (the accounting period used in the financial statements and the starting point for the GloBE rules) of the UPE and other CEs within the MNE Group and mismatches between the Fiscal Year and the taxable year under domestic law of an entity.

4. Further Administrative Guidance on the allocation of Blended CFC Taxes

The Feb 2023 AG introduces the concept of a so-called ‘Blended CFC Tax Regime’. A Blended CFC Tax Regime is a tax regime that aggregates income, losses, and creditable taxes of all CFCs to determine the CFC liability and whereby the CFC tax rate is less than 15%. US GILTI is a good example hereof. Under a simplified allocation method in place for financial years starting on or before December 31, 2025 and ending before July 1, 2027, CFC taxes are allocated to jurisdictions having (i) a GloBE Jurisdictional ETR below the rate at which the CFC country imposes the CFC tax, the Applicable Rate, and (ii) so-called Attributable Income. This is beneficial as it prevents allocation of CFC taxes to jurisdictions with a high ETR. The Dec 23 AG provides further guidance on the allocation of CFC levied under a Blended CFC Tax Regime in specific cases.

5. Transitional Filing Deadlines for MNE Groups with Short Reporting Fiscal Years

All MNE Groups, regardless of the term of their Reporting Fiscal Year, will be given relief so that they do not need to file any GloBE Information Return or notifications before 30 June 2026. This gives MNE Groups that will have a short Reporting Fiscal Year in 2024 extra time.

6. Simplified Calculation Safe Harbour for Non-Material Constituent Entities

MNE Groups may exclude certain non-material subsidiaries from their consolidated financial statements. Consequently, these non-material subsidiaries might not have financial accounts prepared in accordance with the accounting standard applied by the UPE of the MNE Group. In response, the Inclusive Framework agreed on providing Simplified Calculations for NMCEs (Non-material Constituent Entities) as part of the Simplified Calculations Safe Harbour.

How can we support you?

The GloBE Rules have been formally approved the EU and other jurisdictions around the world. In most EU jurisdictions, the IIR and QDMTT will enter into force for years starting on or after 31 December 2023. MNE Groups should therefore be ready to apply the GloBE rules as of 2024. Our Pillar Two team is available to support you in analysing and modelling the impact of the Pillar Two rules on your group, assisting you in setting up compliance processes and exploring ways to mitigate increased taxation and complexity.

Should you have any question in the meantime, please contact a member of our Pillar Two team or your regular trusted contact at Loyens & Loeff.