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Election to spread gains on local property

Applies
FY2024 onwards
Reviewed
Rule
P2-AAG-2024.1
By

Can a gain on local property be spread under Pillar Two?

Yes, by annual election. A net gain on local tangible assets is set against earlier losses first, and the rest spread over 5 years.

Per GloBE Model Rules (Pillar Two), December 2021, Article 3.2.6, election to spread gains on Local Tangible Assets

Where there is Aggregate Asset Gain in a jurisdiction in a Fiscal Year, the Filing Constituent Entity may make an Annual Election for that jurisdiction to adjust GloBE Income or Loss with respect to each previous Fiscal Year in the Look-back Period and to spread any remaining Adjusted Asset Gain over the Look-back Period. Covered Taxes with respect to any Net Asset Gain or Net Asset Loss in the Election Year are excluded from Adjusted Covered Taxes. The Aggregate Asset Gain is carried back to the earliest Loss Year and set off ratably against any Net Asset Loss of any Constituent Entity located in the jurisdiction; any excess is carried forward to the following Loss Year and applied likewise; and any Adjusted Asset Gain that remains is allocated evenly to each Fiscal Year in the Look-back Period. The Effective Tax Rate and Top-up Tax for any previous Fiscal Year must be recalculated under Article 5.4.1. Aggregate Asset Gain is the net gain in the Election Year from the disposition of Local Tangible Assets by all Constituent Entities located in the jurisdiction, excluding the gain or loss on a transfer of assets between Group Members.

A sale of a head office or a factory does not by itself tip a jurisdiction below the Minimum Rate for the year. The gain is tested over the years in which it built up, and against losses on similar property.

Carried back to losses first, then spread evenly

The order

  • 3.2.6(a) — Covered Taxes on the Election Year's Net Asset Gains and Losses come out of Adjusted Covered Taxes
  • 3.2.6(b) — the Aggregate Asset Gain is carried back to the earliest Loss Year in the Look-back Period and set off against its Net Asset Loss
  • 3.2.6(c) — any excess goes to the next Loss Year, and so on
  • 3.2.6(d) — what remains is allocated evenly to each Fiscal Year in the Look-back Period, the Election Year included
  • Each earlier year touched is recalculated under Article 5.4.1; an increase is Additional Current Top-up Tax of the Election Year

Local Tangible Assets only

Immovable property located in the same jurisdiction as the Constituent Entity. The limit keeps the relief away from mobile assets. Sales between Group Members are left out of every figure, because the spread already covers all the years in which group entities held the property.

The Look-back Period and a Loss Year

The Look-back Period is the Election Year and the published number of prior Fiscal Years. A Loss Year is a year in it in which the Net Asset Losses of the entities in the jurisdiction exceeded their Net Asset Gains. A loss already used under an earlier election is reduced by what was set off, so it cannot be used twice.

Between the entities

Within a Loss Year the set-off is shared in proportion to each entity's Net Asset Loss. The amount allocated to each year goes to the entities in proportion to their Net Asset Gains in the Election Year — to those that were located in the jurisdiction in that year; if none was, equally among the entities there.

Why the tax comes out

Apportioning the tax on the gain to each year would be unworkable, and the carry-back is already a substantial benefit. In most cases the election is made precisely because there is little or no tax on the gain. Where there is tax on it and no election is made, the tax simply stays in the rate.

With the realisation election

The election can be combined with an Article 3.2.5 election limited to tangible assets. Fair value and impairment movements will then have been left out along the way, and the gain is measured from the carrying value under that election.

Earlier losses change too

Where an earlier year had a GloBE Loss, it is recalculated after the allocation. If that loss had already been used in a later year, that year's Top-up Tax is recomputed as well.

Order of testing

  1. 1

    Inputs requiring your determination

    The election, the Aggregate Asset Gain, and whether there is any Loss Year — then a row for each.

  2. 2

    The Annual Election

    Without it nothing is adjusted.

  3. 3

    Aggregate Asset Gain in the Election Year

    A net loss on Local Tangible Assets gives the election nothing to act on.

  4. 4

    Set-off against earlier Loss Years

    The earliest Loss Year first, then each later one, each within the Look-back Period.

  5. 5

    Allocation of the Adjusted Asset Gain

    The remainder divided evenly over the Look-back Period.

Examples

Illustrative scenarios — ours, not the authority’s — each computed live by this rule. Change any fact and the outcome is the rule’s, not a hand-written answer.

Sale of a head office building

A group sells its office building for a net gain of EUR 50 million in a jurisdiction that exempts the gain. With the election, EUR 10 million falls in each of the five years of the Look-back Period, and only that much stays in the year of sale.

Computed

EUR 10,000,000 of the Aggregate Asset Gain of EUR 50,000,000 is included in each of the 5 Fiscal Years of the Look-back Period, FY2024 to FY2028, as computed. There being no earlier Loss Year to absorb it, the whole Adjusted Asset Gain of EUR 50,000,000 is allocated evenly (Article 3.2.6(d)). The Election Year keeps one share; among the Constituent Entities it follows their Net Asset Gains in the Election Year. Covered Taxes on any Net Asset Gain or Net Asset Loss of the Election Year are excluded from Adjusted Covered Taxes (Article 3.2.6(a)), and each earlier year touched is recalculated under Article 5.4.1. Based on the figures you supplied.

Workings

Aggregate Asset Gain in the Election YearArticle 10.1 — as supplied
EUR 50,000,000
Adjusted Asset Gain remainingArticle 10.1 — the Aggregate Asset Gain less what was set off against earlier losses
EUR 50,000,000
Look-back PeriodArticle 10.1 — the Election Year and the prior Fiscal Years, FY2024 to FY2028; published value
5
Allocated Asset Gain for each Fiscal Year in the Look-back PeriodArticle 3.2.6(d) — the remainder allocated evenly; this much stays in the Election Year
EUR 10,000,000
Reduction in the Election Year's GloBE IncomeThe Aggregate Asset Gain less the one share that stays
(EUR 40,000,000)

Decided by the allocation of the adjusted asset gain

The same sale after an earlier loss on a warehouse

Three years earlier the group sold a warehouse there at a loss of EUR 20 million. That loss is absorbed first; the remaining EUR 30 million is spread at EUR 6 million a year.

Computed

EUR 6,000,000 of the Aggregate Asset Gain of EUR 50,000,000 is included in each of the 5 Fiscal Years of the Look-back Period, FY2024 to FY2028, as computed. EUR 20,000,000 was first set off against Net Asset Losses of earlier Loss Years, the earliest first (Article 3.2.6(b) and (c)), and the Adjusted Asset Gain of EUR 30,000,000 is allocated evenly (Article 3.2.6(d)). The Election Year keeps one share; among the Constituent Entities it follows their Net Asset Gains in the Election Year. Covered Taxes on any Net Asset Gain or Net Asset Loss of the Election Year are excluded from Adjusted Covered Taxes (Article 3.2.6(a)), and each earlier year touched is recalculated under Article 5.4.1. Based on the figures you supplied.

Workings

Aggregate Asset Gain in the Election YearArticle 10.1 — as supplied
EUR 50,000,000
Set off against the Net Asset Loss of FY2025Article 3.2.6(b) and (c) — a Net Asset Loss of EUR 20,000,000; that year's GloBE Income or Loss is increased by the amount set off
(EUR 20,000,000)
Adjusted Asset Gain remainingArticle 10.1 — the Aggregate Asset Gain less what was set off against earlier losses
EUR 30,000,000
Look-back PeriodArticle 10.1 — the Election Year and the prior Fiscal Years, FY2024 to FY2028; published value
5
Allocated Asset Gain for each Fiscal Year in the Look-back PeriodArticle 3.2.6(d) — the remainder allocated evenly; this much stays in the Election Year
EUR 6,000,000
Reduction in the Election Year's GloBE IncomeThe Aggregate Asset Gain less the one share that stays
(EUR 44,000,000)

Decided by the allocation of the adjusted asset gain

A gain smaller than two earlier losses

A gain of EUR 25 million against losses of EUR 15 million in the earliest year of the period and EUR 20 million in the year before the sale. The earliest is used in full, the later takes the other EUR 10 million, and nothing is left to spread.

Computed

The Aggregate Asset Gain of EUR 25,000,000 for FY2028 is wholly set off against Net Asset Losses of earlier Loss Years in the Look-back Period, the earliest first, as computed (Article 3.2.6(b) and (c)). Nothing remains to be spread, so none of the gain stays in the Election Year; the GloBE Income or Loss of each Loss Year is increased by the amount set off against it. Covered Taxes on any Net Asset Gain or Net Asset Loss of the Election Year are excluded from Adjusted Covered Taxes (Article 3.2.6(a)), and each earlier year touched is recalculated under Article 5.4.1. Based on the figures you supplied.

Workings

Aggregate Asset Gain in the Election YearArticle 10.1 — as supplied
EUR 25,000,000
Set off against the Net Asset Loss of FY2024Article 3.2.6(b) and (c) — a Net Asset Loss of EUR 15,000,000; that year's GloBE Income or Loss is increased by the amount set off
(EUR 15,000,000)
Set off against the Net Asset Loss of FY2027Article 3.2.6(b) and (c) — a Net Asset Loss of EUR 20,000,000; that year's GloBE Income or Loss is increased by the amount set off
(EUR 10,000,000)
Adjusted Asset Gain remainingArticle 10.1 — the Aggregate Asset Gain less what was set off against earlier losses
EUR 0
Look-back PeriodArticle 10.1 — the Election Year and the prior Fiscal Years, FY2024 to FY2028; published value
5
Allocated Asset Gain for each Fiscal Year in the Look-back PeriodArticle 3.2.6(d) — the remainder allocated evenly; this much stays in the Election Year
EUR 0
Reduction in the Election Year's GloBE IncomeThe Aggregate Asset Gain less the one share that stays
(EUR 25,000,000)

Decided by the set-off against earlier loss years

No election

The same sale in a jurisdiction that taxes the gain in full: the group leaves the gain, and the tax on it, in the year of sale.

Computed

No adjustment is made, as determined: the Annual Election under Article 3.2.6 has not been made for the jurisdiction, so gains and losses on Local Tangible Assets stay in the GloBE Income or Loss of the year in which they arise, with the Covered Taxes on them. Based on the determination you supplied.

Decided by the annual election

Try it

Supply the facts and this rule computes the outcome in your browser, live. Leave a determination undecided and it blocks the result — it is never read as a no.

Loss Years in the Look-back Period

One row for each earlier Fiscal Year in the Look-back Period in which Net Asset Losses exceeded Net Asset Gains in the jurisdiction. Enter the loss as a positive amount, net of anything already set off under an earlier election. Leave empty if there is none.

Not computed yet

1 input still need your determination:

  • Has the Filing Constituent Entity made the Annual Election under Article 3.2.6 for the jurisdiction for this Fiscal Year?

Computed in your browser from the figures you supply. Nothing is sent anywhere, and the result is a computation against a rule — reference, not tax advice.

Thresholds

pillar_two.asset_gain_look_back_years
count 5 · reviewed 2026-10-04 · source

Threshold values are published separately from the rule and carried with a citation. Where none has been published for the period being computed, the rule reports that rather than applying a default.

Sources

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Reference, not tax advice.

Pankaj Agarwal — Tax Technology Leader