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Recapture of deferred tax liabilities

Applies
FY2024 onwards
Reviewed
Rule
P2-DTLR-2024.1
By

When is a deferred tax liability recaptured under Pillar Two?

When a liability counted in Covered Taxes does not reverse within 5 years, unless it is an exception accrual. The earlier year is then recalculated.

Per GloBE Model Rules (Pillar Two), December 2021, Articles 4.4.4, 4.4.5 and 4.4.7

To the extent a deferred tax liability that is not a Recapture Exception Accrual is taken into account in the Total Deferred Tax Adjustment Amount and is not paid within the published number of subsequent Fiscal Years, it must be recaptured. The Recaptured Deferred Tax Liability for the current Fiscal Year is the amount of the increase in a category of deferred tax liability that was included in the Total Deferred Tax Adjustment Amount in the corresponding preceding Fiscal Year and that has not reversed by the end of the last day of the current Fiscal Year. It is treated as a reduction to Covered Taxes in that preceding Fiscal Year, whose Effective Tax Rate and Top-up Tax are recalculated under Article 5.4.1.

Deferred tax that never becomes payable cannot permanently shelter income. The tax still counts — in the year the liability reverses rather than the year it was booked.

A look back at the year the liability was claimed

What is recaptured

The part of the increase in a category of deferred tax liability, claimed in the tested year, that has not reversed by the end of the current year. 'Paid' means the accounting reversal of the liability.

Where it lands

It reduces Covered Taxes in the year it was claimed. That year is recalculated, and any increase in Top-up Tax is Additional Current Top-up Tax of the current year. The earlier return is not amended.

Never recaptured — Recapture Exception Accruals

  • Cost recovery allowances on tangible assets
  • The cost of a government licence for immovable property or natural resources, with significant investment in tangible assets
  • Research and development expenses
  • De-commissioning and remediation expenses
  • Fair value accounting on unrealised net gains
  • Foreign currency exchange net gains
  • Insurance reserves and deferred acquisition costs
  • Gains on tangible property reinvested in tangible property in the same jurisdiction
  • Accounting principle changes on those categories

Or leave it out from the start

By Annual Election a liability not expected to reverse in time is an Unclaimed Accrual: it is not counted when booked and is counted when paid, and nothing is recaptured.

Tracking

Liabilities may be tracked item by item, by General Ledger account, or by Aggregate DTL Category, with first-in-first-out or last-in-first-out assumptions about which accruals a reversal relates to. A category that includes a Recapture Exception Accrual is recaptured as a whole.

First-in-first-out or last-in-first-out

First-in-first-out may be used for a single General Ledger account; for an Aggregate DTL Category whose liabilities all reverse within two years of one another; or where the entity can show that it still recaptures what stays outstanding beyond five years. Otherwise last-in-first-out must be used, because in a category that mixes short- and long-lived liabilities the churn of the short ones can make everything look reversed. A category made up only of liabilities that demonstrably reverse within five years — ordinary inventory, say, but not long-held spare parts — needs no tracking at all, if the entity keeps the evidence.

Points the Commentary settles

  • Liabilities brought in at transition under Article 9.1.1 are never recaptured. Under first-in-first-out, reversals are matched to them first; under last-in-first-out, last
  • A liability measured on a GloBE carrying value that differs from the accounting one is tested for reversal on the GloBE value
  • Leases are within the tangible asset exception, for the lessee's right-of-use asset and for a lessor that depreciates the leased asset for tax
  • The Unclaimed Accrual election follows the tracking unit: item by item, a whole General Ledger account, or a whole Aggregate DTL Category — never part of one. It can be made year by year for liabilities expected to stay beyond five years, or as a Five-Year Election for an account or category whatever is expected
  • A liability that was never claimed is not recaptured, and its reversal is left out of Adjusted Covered Taxes too
  • On an acquisition the five years restart for the buyer, and a liability still unreversed at the end reduces the buyer's Covered Taxes of that year instead of reopening the earlier one

Order of testing

  1. 1

    Inputs requiring your determination

    Every input the computation reaches must be supplied; nil is entered, not left blank.

  2. 2

    Recapture Exception Accruals

    Article 4.4.5 — never recaptured.

  3. 3

    Reversal within the period

    What was claimed in the tested year against what has reversed.

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.

Goodwill deducted for tax and not amortised in the accounts

An acquired business whose goodwill is amortised for tax while the accounts carry it unamortised: the deferred tax liability grows each year and reverses only on impairment or sale. EUR 15 million was claimed in FY2025, of which EUR 6 million has reversed by the end of FY2030. Intangibles are not on the list of exceptions, so the rest is recaptured.

Computed

A Recaptured Deferred Tax Liability of EUR 9,000,000 arises for FY2030 as computed (Article 4.4.4): of the EUR 15,000,000 included in the Total Deferred Tax Adjustment Amount in FY2025, EUR 6,000,000 has reversed by the end of FY2030 and the rest has not, 5 Fiscal Years on. It is treated as a reduction to Covered Taxes in FY2025; the Effective Tax Rate and Top-up Tax of FY2025 are recalculated under Article 5.4.1 and any increase is Additional Current Top-up Tax of FY2030. When the liability does reverse, the amount is added back under Article 4.4.2(b). Based on the figures you supplied.

Workings

Years allowed for reversalArticle 4.4.4 — published value; the tested year is FY2025
5
Deferred tax liability included in FY2025Article 4.4.4 — the increase in the category, as supplied
EUR 15,000,000
Reversed by the end of FY2030Article 4.4.4 — as supplied
(EUR 6,000,000)
Recaptured Deferred Tax LiabilityArticle 4.4.4 — a reduction to Covered Taxes in FY2025
EUR 9,000,000

Decided by the reversal within the period

Customer relationships recognised by local tax on an asset purchase

An intangible bought with a business and deducted for tax over five years while the accounts amortise it over fifteen. EUR 9 million of deferred tax liability was claimed in FY2025 and EUR 3 million has reversed by the end of FY2030. Intangibles are not an excepted category, so EUR 6 million is recaptured.

Computed

A Recaptured Deferred Tax Liability of EUR 6,000,000 arises for FY2030 as computed (Article 4.4.4): of the EUR 9,000,000 included in the Total Deferred Tax Adjustment Amount in FY2025, EUR 3,000,000 has reversed by the end of FY2030 and the rest has not, 5 Fiscal Years on. It is treated as a reduction to Covered Taxes in FY2025; the Effective Tax Rate and Top-up Tax of FY2025 are recalculated under Article 5.4.1 and any increase is Additional Current Top-up Tax of FY2030. When the liability does reverse, the amount is added back under Article 4.4.2(b). Based on the figures you supplied.

Workings

Years allowed for reversalArticle 4.4.4 — published value; the tested year is FY2025
5
Deferred tax liability included in FY2025Article 4.4.4 — the increase in the category, as supplied
EUR 9,000,000
Reversed by the end of FY2030Article 4.4.4 — as supplied
(EUR 3,000,000)
Recaptured Deferred Tax LiabilityArticle 4.4.4 — a reduction to Covered Taxes in FY2025
EUR 6,000,000

Decided by the reversal within the period

A liability that reversed in time

The same liability, fully reversed.

Computed

Nothing is recaptured as computed: the EUR 15,000,000 of deferred tax liability included in the Total Deferred Tax Adjustment Amount in FY2025 has reversed in full by the end of FY2030, within the 5 subsequent Fiscal Years Article 4.4.4 allows. Based on the figures you supplied.

Workings

Years allowed for reversalArticle 4.4.4 — published value; the tested year is FY2025
5
Deferred tax liability included in FY2025Article 4.4.4 — the increase in the category, as supplied
EUR 15,000,000
Reversed by the end of FY2030Article 4.4.4 — as supplied
(EUR 15,000,000)
Recaptured Deferred Tax LiabilityArticle 4.4.4 — a reduction to Covered Taxes in FY2025
EUR 0

Decided by the reversal within the period

Accelerated depreciation on plant

A deferred tax liability on cost recovery allowances for tangible assets.

Computed

The deferred tax liability is not subject to recapture as computed: it is a Recapture Exception Accrual under Article 4.4.5, which Article 4.4.4 leaves in Adjusted Covered Taxes however long it takes to reverse. Based on what you supplied.

Decided by the recapture exception accruals

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.

Not computed yet

1 input still need your determination:

  • Is the deferred tax liability a Recapture Exception Accrual — one of the nine categories of Article 4.4.5, such as cost recovery allowances on tangible assets or research and development expenses? Where it is tracked in a General Ledger account or Aggregate DTL Category with other liabilities, answer for the category as a whole.

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.dtl_recapture_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