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24-1, Frequently Asked Questions About “Pillar Two” (March 5, 2024; Updated April 15, 2024)

Financial Reporting Alert 24-1
March 5, 2024; Updated April 15, 2024
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Frequently Asked Questions About “Pillar Two”

This publication was updated on April 15, 2024, to address a number of additional questions. Changes include updates to Topic 5 (uncertain tax positions) and Topic 6 (other tax impacts) as well as the addition of Topic 8, which addresses the accounting for certain aspects of the GloBE rules in the separate financial statements of constituent entities that are members of a multinational enterprise group subject to such rules. Text that has been added or amended since this publication’s initial issuance has been marked with a boldface italic date in brackets


The OECD periodically publishes commentary, administrative guidance, and information about the GloBE rules on its Web site.
FASB Accounting Standards Codification (ASC) Topic 740, Income Taxes.
Article 10.1 of the GloBE rules defines a QDMTT as follows:
A “Qualified Domestic Minimum Top-up Tax means a minimum tax that is included in the domestic law of a jurisdiction and that:
(a) determines the Excess Profits of the Constituent Entities located in the jurisdiction (domestic Excess Profits) in a manner that is equivalent to the GloBE Rules;
(b) operates to increase domestic tax liability with respect to domestic Excess Profits to the Minimum Rate for the jurisdiction and Constituent Entities for a Fiscal Year; and
(c) is implemented and administered in a way that is consistent with the outcomes provided for under the GloBE Rules and the Commentary, provided that such jurisdiction does not provide any benefits that are related to such rules.
A Qualified Domestic Minimum Top-up Tax may compute domestic Excess Profits based on an Acceptable Financial Accounting Standard permitted by the Authorised Accounting Body or an Authorised Financial Accounting Standard adjusted to prevent any Material Competitive Distortions, rather than the financial accounting standard used in the Consolidated Financial Statements.”
In accordance with the OECD’s administrative guidance on the GloBE rules, “a QDMTT must meet an additional set of standards to qualify for the safe harbour. In particular, and given the ability of a QDMTT to depart from the design of the GloBE Rules, a QDMTT that qualifies for a safe harbour must meet following three standards:
  1. the QDMTT Accounting Standard which requires a QDMTT to be computed based on the UPE’s Financial Accounting Standard or a Local Financial Accounting Standard subject to certain conditions;
  2. the Consistency Standard which requires the QDMTT computations to be the same as the computations required under the GloBE Rules except where the Commentary to the QDMTT definition in Article 10.1 as modified by the Administrative Guidance (hereafter the QDMTT Commentary) explicitly requires a QDMTT to depart from the GloBE Rules or where the Inclusive Framework decides that an optional variation that departs from the GloBE Rules still meets the standard; and
  3. the Administration Standard which requires the QDMTT jurisdiction to meet the requirements of an on-going monitoring process similar to the one applicable to jurisdictions implementing the GloBE Rules.“
Entity filing the GloBE information return.
Certain DTAs are disregarded for GloBE purposes, including but not limited to those subject to Articles 9.1.2 and 9.1.3 of the GloBE rules. Article 9.1.2 states, “Deferred tax assets arising from items excluded from the computation of GloBE Income or Loss under Chapter 3 must be excluded from the Article 9.1.1 computation when such deferred tax assets are generated in a transaction that takes place after 30 November 2021.” Article 9.1.3 states, “In the case of a transfer of assets between Constituent Entities after 30 November 2021 and before the commencement of a Transition Year, the basis in the acquired assets (other than inventory) shall be based upon the disposing Entity’s carrying value of the transferred assets upon disposition with the deferred tax assets and liabilities brought into GloBE determined on that basis.”
An entity must apply judgment in determining whether it is more likely than not that the QDMTT qualifies for the QDMTT safe harbor.
Alternatively, an entity could make an annual election not to include the deferred tax expense related to the increase in the DTL in adjusted covered taxes for such fiscal year.
FASB Accounting Standards Codification Subtopic 835-30, Interest: Imputation of Interest.
Article 4.1.5 states, “In a Fiscal Year in which there is no Net GloBE Income for a jurisdiction, if the Adjusted Covered Taxes for a jurisdiction are less than zero and less than the Expected Adjusted Covered Taxes Amount the Constituent Entities in that jurisdiction shall be treated as having Additional Current Top-up Tax for the jurisdiction under Article 5.4 arising in the current Fiscal Year equal to the difference between these amounts. The Expected Adjusted Covered Taxes Amount is equal to the GloBE Income or Loss for a jurisdiction multiplied by the Minimum Rate.”
See Section 2.7 of the February 2, 2023, administrative guidance on the GloBE rules.
SEC Regulation S-K, Item 303(a), “Management’s Discussion and Analysis of Financial Condition and Results of Operations: Objective.”