GloBE Loss and tax payable - Understanding the issues and optimising compliance

Introduction

Can you be in a GloBE loss position yet still end up paying additional tax? The answer is yes – and it often comes as a surprise to many businesses.

The OECD’s Pillar 2 introduces strict rules on calculating GLoBE losses and their tax treatment.

Depending on the makeup of your deferred tax assets (DTAs), you could still owe top-up tax, even if you report an accounting loss.

In this article, Marie-Laure Navelot explains:

  1. Why a GloBE loss can still trigger additional tax
  2. How Article 52 rules impose tax on losses
  3. Which options are available to optimise your tax position
  4. How GMT Insight can help you anticipate and fine-tune your decisions

1. Why a GloBE Loss might lead to Top-Up tax

Article 52 of the GloBE rules specifies that in the event of a GloBE loss and a deferred tax asset (DTA ) exceeding 15% of this loss, an additional tax is due. A few clarifications are therefore in order:

What is a Deferred Tax Asset (DTA) under Pillar 2?

A deferred tax asset (DTA) is recognised when a business anticipates a reduction in future tax liabilities. It often arises in scenarios such as:

  • Carried-forward tax losses: If a company incurs a loss now, it may offset that loss against future taxable profits.
  • Temporary differences between tax and accounting standards: Certain expenses or revenues are recognised differently under local accounting rules vs. tax laws.

💡 DTA and Pillar 2: A strict rule

Under the GloBE rules for Pillar 2, all deferred taxes must be valued at a 15% rate, even if the local tax rate is higher.

This can lead to a downward revaluation of DTAs, potentially triggering a top-up tax liability if the DTA exceeds 15% of the GLoBE loss.

What is a GloBE loss?

A GloBE loss is a negative result after applying the required adjustments under the Pillar 2 rules.

Unlike standard local tax losses, a GloBE loss:
✔ Is calculated using GloBE-specific rules, rather than local tax legislation.
✔ Includes various accounting and tax adjustments to ensure international alignment.
✔ May differ significantly from the loss reported under domestic tax rules.

Why does it matter?

  • If a business posts a GloBE loss, it might reasonably expect to have no tax to pay.
  • However, if its DTAs exceed 15% of that GloBE loss, top-up tax can still be levied immediately.

🚨 Important: A GloBE loss remains attached to the group and does not follow a company if it is sold to another group.

2. Example with figures – practical case (see the video)

3. Two options for managing this scenario

If your DTA exceeds 15% of your GloBE loss, you have two choices:

✔ Option 1 – Pay the immediate top-up tax

  • You settle the difference between your recognised DTA and the theoretical 15% threshold.
  • You can reclaim this amount later when you utilise your local tax losses in the future.

✔ Option 2 – Elect the GloBE Loss (Article 451 of the GloBE rules)

  • You relinquish all DTAs and replace them with a tax charge calculated at 15% of your GloBE loss.
  • This may be more advantageous in certain situations, but requires careful analysis.

💡 Which option is best? It depends on your particular circumstances and your long-term tax strategy.

4. Why simulations are essential

Decisions relating to Pillar 2 and GLoBE losses vary across jurisdictions and depend on the specifics of each group.

Key points to consider include:
✔ Permanent tax differences and their impact on your tax liability
✔ The potential for carrying forward losses
✔ The consequences of entity disposals: A GloBE loss remains within the original group, even if you sell the entity.

📌 Example:

  • An entity with a GloBE loss that is subsequently sold does not transfer that loss to its new group.
  • Conversely, a newly acquired entity does not bring any previously incurred GloBE losses into the new group.

🚨 Caution: Getting this wrong can be costly!

5. Automate your simulations with GMT Insight

Because you need a tool that can handle this complexity, GMT Insight helps you simulate all your options.

GMT Insight offers features to:
✔ Automate the calculation of GloBE losses and deferred tax assets
✔ Analyse which option is best in each jurisdiction
✔ Anticipate the tax consequences of strategic decisions
✔ Ensure full compliance with Pillar 2 rules

Don’t leave your tax strategy to chance—use GMT Insight to manage your fiscal planning with precision.

📖 Explore how GMT Insight can help.

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