CHAPTER 8

Transition Rules

111AW. Tax treatment of deferred tax assets, deferred tax liabilities and transferred assets upon transition

(1) For the purpose of this section, ‘transition year’, for a jurisdiction, means the first fiscal year in which an MNE group or large-scale domestic group falls within the scope of a qualified IIR, qualified UTPR or qualified domestic top-up tax, in respect of that jurisdiction.

(2) (a) When determining the effective tax rate for a jurisdiction in accordance with section 111AC—

(i) in a transition year, and

(ii) for each subsequent fiscal year,

the MNE group or a large-scale domestic group shall take into account all the deferred tax assets and deferred tax liabilities, reflected or disclosed in the financial accounts of all the constituent entities in a jurisdiction for the transition year.

(b) For the purposes of paragraph (a), deferred tax assets and deferred tax liabilities shall be taken into account at the lower of—

(i) the minimum tax rate, or

(ii) the applicable domestic tax rate.

(c) Notwithstanding paragraph (b), where a deferred tax asset—

(i) is attributable to a qualifying loss, and

(ii) has been recorded at a tax rate lower than the minimum tax rate,

the deferred tax asset shall be taken into account at the minimum tax rate for the purposes of paragraph (a).

(d) For the purposes of paragraph (a), the impact of any valuation adjustment or accounting recognition adjustment, with respect to a deferred tax asset, shall be disregarded.

(3) For the purposes of subsection (2)(a), deferred tax assets—

(a) arising from items excluded from the calculation of qualifying income or loss in accordance with Chapter 3, and

(b) generated in a transaction that takes place after 30 November 2021,

shall not be taken into account when determining the effective rate for a jurisdiction.

(4) Where—

(a) after 30 November 2021, and

(b) before the commencement of a transition year in respect of the transferring entity,

assets, other than inventory, are transferred between constituent entities, the acquirer’s basis in the acquired assets for the purposes of this Part shall be equal to the transferring entity’s carrying value of the transferred assets at the time immediately before disposal, with deferred tax assets and deferred tax liabilities determined accordingly.