GloBE Rules Series

ITQ G-

104

June 29, 2024

Question

ACo, a Constituent Entity, has several balance sheet accounts, including:

1. Fixed Assets, which consists of 6 General Ledger (GL) accounts:

GL account 1: plant and equipment - 20 items
GL account 2: land and buildings - 4 items
GL account 3: non-amortisable goodwill - 1 item
GL account 4: patents with a life of over 10 years - 3 items
GL account 5: leasehold assets - 5 items (GL account 5 can produce either a net deferred tax asset or a net deferred tax liability)
GL account 6: computers and other office equipment - 15 items (DTLs for the computers and other office equipment will fully reverse after 3 years)

2. Trade receivables, which consists of 4 GL accounts:

GL account 7 - 3 items
GL account 8 - 5 items
GL account 9 - 1 item
GL account 10 - 1 item

3. Trade payables, which consists of 2 GL accounts:

GL account 11 - 25 items
GL account 12 - 10 items

4. Dividends receivable, which consists of 2 GL accounts:

GL account 13 - 1 item (dividends from ACo's subsidiary, BCo)
GL account 14 - 1 item (dividends from ACo's subsidiary, CCo)

Based on this limited information, which categories is ACo allowed to use, in order to apply the DTL recapture rule in Art. 4.4.4?

Answer

This answer is based on paras. 90 to 90.11 in the Comm on Art. 4.4.4 (amended / introduced by June 2024 AG)…

2 or more of the 4 balance sheet accounts cannot comprise an Aggregate DTL Category (ADTLC): para. 90.6.

Fixed Assets (i.e., all 6 GL accounts) cannot comprise an ADTLC: 3 of the GL accounts are excluded from participating in an ADTLC: (i) GL account 3 (non-amortisable goodwill: para. 90.9(a)); (ii) GL account 4 (patents with life of 10 years: para. 90.9(b)); and (iii) GL account 5 (swinging account: para. 90.11). Each of these 3 exclusions must be separately tracked on a GL account basis or on an item-by-item basis. See Note below regarding GL account 5.

Tax expenses for GL accounts 1, 2, and 6 should qualify as Recapture Exception Accruals (defined in Art. 4.4.5(a): "Cost recovery allowances on tangible assets"). They should therefore be excluded from the DTL recapture rule: para. 90.5.

Trade receivables (i.e., all 4 GL accounts) can comprise an ADTLC. Alternatively, 2 or 3 of the GL accounts can comprise an ADTLC; or DTL tracking can be done on a GL account basis or on an item-by-item basis.

Trade payables (i.e., both of 2 GL accounts) can comprise an ADTLC. Alternatively, DTL tracking can be done on a GL account basis or an item-by-item basis.

Dividends receivable: both GL accounts are excluded from the DTL recapture rule, because the dividends are excluded from the computation of GloBE Income or Loss: para. 90.3.

Final answer: (i) GL accounts 3, 4, and 5 [see Note below] can be tracked on a GL account basis or on an item-by-item basis, but they cannot comprise an ADTLC; (ii) GL accounts 7, 8, 9, and 10 can comprise an ADTLC (any 2, 3 or all 4 of the accounts), or be tracked on a GL account basis or on an item-by-item basis; (iii) GL accounts 11 and 12 can comprise an ADTLC, or can be tracked on a GL account basis or on an item-by-item basis; (iv) the remaining accounts (GL accounts 1, 2, 6, 13, and 14) are excluded from the DTL recapture rule.

Note: It's possible that tax expenses for GL account 5 (leasehold assets) would be Recapture Exception Accruals – in which case, GL account 5 would be excluded from the DTL recapture rule.

Do you agree?

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