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Excess Negative Tax Expense and its carry-forward

Applies
FY2024 onwards
Reviewed
Rule
P2-ENTE-2024.1
By

What happens when Pillar Two covered taxes are negative?

In a loss year, taxes below the expected amount at 15% give Additional Current Top-up Tax, or by election carry forward against later taxes.

Per GloBE Model Rules (Pillar Two), December 2021, Article 4.1.5, Adjusted Covered Taxes in a year with no Net GloBE Income

In a Fiscal Year in which there is no Net GloBE Income for a jurisdiction, if its Adjusted Covered Taxes are less than zero and less than the Expected Adjusted Covered Taxes Amount, the Constituent Entities in the jurisdiction are treated as having Additional Current Top-up Tax for the year equal to the difference between those amounts. The Expected Adjusted Covered Taxes Amount is the GloBE Income or Loss of the jurisdiction multiplied by the Minimum Rate. Under the Commentary, the Filing Constituent Entity may instead make an Annual Election to apply the Excess Negative Tax Expense administrative procedure: the amount is excluded from the year's Adjusted Covered Taxes and carried forward. Where Adjusted Covered Taxes are negative in a year in which the jurisdiction has GloBE Income, the procedure is mandatory and the Excess Negative Tax Expense is the whole of the negative amount. In each subsequent Fiscal Year in which the jurisdiction has GloBE Income and positive Adjusted Covered Taxes, those taxes are reduced, not below zero, by the balance carried forward.

Negative covered taxes that a loss does not explain are a permanent difference. Either they produce top-up tax in the loss year, or — by election, and always in a profitable year — they are carried forward and lower the Effective Tax Rate of later years instead.

One article, one administrative procedure, two cases

Article 4.1.5 — a loss year, both limbs required

  • There is no Net GloBE Income for the jurisdiction in the Fiscal Year
  • The Adjusted Covered Taxes are less than zero
  • AND they are less than the Expected Adjusted Covered Taxes Amount
  • The difference is Additional Current Top-up Tax of the year — unless the election below is made

The expected amount is signed

It is the GloBE Income or Loss of the jurisdiction — the income less the losses, nil or negative when there is no Net GloBE Income — multiplied by the Minimum Rate. With a loss it is negative, so "less than the expected amount" compares a negative with a negative. A deferred tax asset recorded on the loss at the Minimum Rate matches the expected amount exactly and produces nothing; only negative tax beyond what the loss explains is caught.

Why it arises

A permanent difference. The usual case is a tax loss larger than the GloBE Loss — a super-deduction, a notional interest deduction, an expense deductible for tax and absent from the accounts — on which a deferred tax asset is recorded. The asset is real tax relief with no GloBE loss behind it.

The election in a loss year

An Annual Election of the Filing Constituent Entity for the jurisdiction. The amount computed under Article 4.1.5 is the Excess Negative Tax Expense: it is excluded from the year's Adjusted Covered Taxes and carried forward, and no Additional Current Top-up Tax arises on it. The election is made by applying the procedure in the computation.

Mandatory in a year with GloBE Income

Where the jurisdiction has GloBE Income and negative Adjusted Covered Taxes, the Top-up Tax Percentage would exceed the Minimum Rate. The procedure is then not a choice: the Excess Negative Tax Expense is the whole of the negative Adjusted Covered Taxes, the Effective Tax Rate is computed on nil taxes, and the amount is carried forward.

Using the carry-forward

  • It is applied in each later year in which the jurisdiction has GloBE Income and positive Adjusted Covered Taxes
  • It reduces those taxes, not below zero, and the balance falls by the same amount
  • It must be used in every such year — it cannot be held back
  • It is an attribute of the group for the jurisdiction: it is kept if entities there are sold, and comes back into use if the group later has entities there again

A loss carried back is charged now

Excess Negative Tax Expense attributable to a loss that is carried back against earlier years for domestic tax cannot go into the carry-forward. It is taken into account under Article 4.1.5 in the current year, election or not.

Order of testing

  1. 1

    Inputs requiring your determination

    The income, the losses and the Adjusted Covered Taxes must all be supplied, in one currency. The election is asked for only once an amount arises in a loss year.

  2. 2

    No Net GloBE Income

    Where the income exceeds the losses Article 4.1.5 does not apply.

  3. 3

    Negative Adjusted Covered Taxes in a year with GloBE Income

    The whole negative amount is excluded and carried forward. Mandatory; no election.

  4. 4

    Adjusted Covered Taxes against the Expected Adjusted Covered Taxes Amount

    Both limbs are required: below zero, and below the expected amount.

  5. 5

    The Annual Election to carry the amount forward

    Made: the amount is carried forward, less any part attributable to a loss carried back. Not made: it is Additional Current Top-up Tax of the year.

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.

A super-deduction in a loss year, no election

A jurisdiction with a GloBE Loss of EUR 100 million and a tax loss of roughly EUR 267 million after a research super-deduction, on which a deferred tax asset of EUR 40 million is recorded. The loss explains EUR 15 million of negative tax at the Minimum Rate; the other EUR 25 million is Additional Current Top-up Tax.

Computed

Additional Current Top-up Tax of EUR 25,000,000 arises for FY2026 as computed: there is no Net GloBE Income, and the Adjusted Covered Taxes of (EUR 40,000,000) are both less than zero and less than the Expected Adjusted Covered Taxes Amount of (EUR 15,000,000) — the GloBE Income or Loss of (EUR 100,000,000) at the Minimum Rate of 15%. Article 4.1.5 treats the difference as Additional Current Top-up Tax under Article 5.4 arising in the year. The Annual Election to carry the amount forward as Excess Negative Tax Expense instead has not been made. Based on the figures you supplied.

Workings

GloBE Income or (Loss) of the jurisdictionArticle 4.1.5 — the income less the losses; there is no Net GloBE Income
(EUR 100,000,000)
Minimum RateArticle 4.1.5 — published value for FY2026
15%
Expected Adjusted Covered Taxes AmountArticle 4.1.5 — the GloBE Income or Loss multiplied by the Minimum Rate
(EUR 15,000,000)
Adjusted Covered TaxesArticle 4.1.5 — as supplied
(EUR 40,000,000)
Amount under Article 4.1.5The difference between the expected amount and the Adjusted Covered Taxes
EUR 25,000,000
Additional Current Top-up TaxArticle 4.1.5 — the whole amount, no election to carry it forward having been made
EUR 25,000,000

Decided by the adjusted covered taxes against the expected adjusted covered taxes amount

The same year with the election

The same figures where the Filing Constituent Entity elects the administrative procedure: nothing is paid for the loss year, and EUR 25 million is carried forward against later years' Adjusted Covered Taxes.

Computed

An Excess Negative Tax Expense of EUR 25,000,000 is carried forward from FY2026 as computed, and no Additional Current Top-up Tax arises under Article 4.1.5. There is no Net GloBE Income, and the Adjusted Covered Taxes of (EUR 40,000,000) are less than zero and less than the Expected Adjusted Covered Taxes Amount of (EUR 15,000,000), a difference of EUR 25,000,000. Under the Annual Election in the Commentary to Article 4.1.5 the amount is excluded from the year's Adjusted Covered Taxes and reduces them in later years in which the jurisdiction has GloBE Income and positive taxes. Based on the figures you supplied.

Workings

GloBE Income or (Loss) of the jurisdictionArticle 4.1.5 — the income less the losses; there is no Net GloBE Income
(EUR 100,000,000)
Minimum RateArticle 4.1.5 — published value for FY2026
15%
Expected Adjusted Covered Taxes AmountArticle 4.1.5 — the GloBE Income or Loss multiplied by the Minimum Rate
(EUR 15,000,000)
Adjusted Covered TaxesArticle 4.1.5 — as supplied
(EUR 40,000,000)
Amount under Article 4.1.5The difference between the expected amount and the Adjusted Covered Taxes
EUR 25,000,000
Additional Current Top-up TaxNil — the amount is carried forward under the Annual Election
EUR 0
Excess Negative Tax Expense carried forwardCommentary to Article 4.1.5, paragraphs 21.5 and 21.7
EUR 25,000,000

Decided by the annual election to carry the amount forward

A loss asset that matches the loss

The same GloBE Loss of EUR 100 million with a deferred tax asset of EUR 15 million — the loss at the Minimum Rate. Below zero, but not below the expected amount, so nothing arises and no election is needed.

Computed

No Additional Current Top-up Tax arises under Article 4.1.5 as computed: there is no Net GloBE Income, but the Adjusted Covered Taxes of (EUR 15,000,000) are not less than the Expected Adjusted Covered Taxes Amount of (EUR 15,000,000), and the article requires both. Based on the figures you supplied.

Workings

GloBE Income or (Loss) of the jurisdictionArticle 4.1.5 — the income less the losses; there is no Net GloBE Income
(EUR 100,000,000)
Minimum RateArticle 4.1.5 — published value for FY2026
15%
Expected Adjusted Covered Taxes AmountArticle 4.1.5 — the GloBE Income or Loss multiplied by the Minimum Rate
(EUR 15,000,000)
Adjusted Covered TaxesArticle 4.1.5 — as supplied
(EUR 15,000,000)
Additional Current Top-up TaxNil — the Adjusted Covered Taxes are not less than the Expected Adjusted Covered Taxes Amount
EUR 0

Decided by the adjusted covered taxes against the expected adjusted covered taxes amount

Negative taxes in a profitable year

The Commentary's example: GloBE Income of 100 and Adjusted Covered Taxes of minus 5. Article 4.1.5 does not apply, the carry-forward of 5 is mandatory, and the Top-up Tax Percentage for the year stays at the Minimum Rate.

Computed

An Excess Negative Tax Expense of EUR 5 is excluded from the Adjusted Covered Taxes for FY2026 and carried forward, as computed. Article 4.1.5 does not apply, because there is Net GloBE Income of EUR 100; but the Adjusted Covered Taxes of (EUR 5) are negative, which would give a Top-up Tax Percentage above the Minimum Rate, and the Commentary to Article 5.2.1 makes the Excess Negative Tax Expense administrative procedure mandatory in that case. No election is involved. The Effective Tax Rate for the year is computed on nil taxes, and the carry-forward reduces Adjusted Covered Taxes in later years in which the jurisdiction has GloBE Income and positive taxes. Based on the figures you supplied.

Workings

GloBE Income or (Loss) of the jurisdictionArticle 5.1.2 — positive, so Net GloBE Income exists
EUR 100
Adjusted Covered TaxesAs supplied — negative
(EUR 5)
Excess Negative Tax Expense carried forwardCommentary to Article 5.2.1, paragraph 15.3 — equal to the negative Adjusted Covered Taxes; mandatory
EUR 5

Decided by the negative adjusted covered taxes in a year with globe income

Part of the loss is carried back

The first example with the election, where EUR 10 million of the amount is attributable to a loss carried back against an earlier year for domestic tax: that part is charged now and EUR 15 million is carried forward.

Computed

An Excess Negative Tax Expense of EUR 15,000,000 is carried forward from FY2026 as computed, and Additional Current Top-up Tax of EUR 10,000,000 arises on the part attributable to a loss carried back for domestic tax, which the Commentary requires to be taken into account currently. There is no Net GloBE Income, and the Adjusted Covered Taxes of (EUR 40,000,000) are less than zero and less than the Expected Adjusted Covered Taxes Amount of (EUR 15,000,000), a difference of EUR 25,000,000. Under the Annual Election in the Commentary to Article 4.1.5 the amount is excluded from the year's Adjusted Covered Taxes and reduces them in later years in which the jurisdiction has GloBE Income and positive taxes. Based on the figures you supplied.

Workings

GloBE Income or (Loss) of the jurisdictionArticle 4.1.5 — the income less the losses; there is no Net GloBE Income
(EUR 100,000,000)
Minimum RateArticle 4.1.5 — published value for FY2026
15%
Expected Adjusted Covered Taxes AmountArticle 4.1.5 — the GloBE Income or Loss multiplied by the Minimum Rate
(EUR 15,000,000)
Adjusted Covered TaxesArticle 4.1.5 — as supplied
(EUR 40,000,000)
Amount under Article 4.1.5The difference between the expected amount and the Adjusted Covered Taxes
EUR 25,000,000
Additional Current Top-up TaxCommentary, paragraph 21.5 — the part attributable to a loss carried back, taken currently
EUR 10,000,000
Excess Negative Tax Expense carried forwardCommentary to Article 4.1.5, paragraphs 21.5 and 21.7
EUR 15,000,000

Decided by the annual election to carry the amount forward

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

3 inputs still need your determination:

  • What is the sum of the GloBE Income of all Constituent Entities located in the jurisdiction for the Fiscal Year (Article 5.1.2(a))? Enter nil if there is none.
  • What is the sum of their GloBE Losses for the Fiscal Year, as a positive amount (Article 5.1.2(b))? Enter nil if there is none.
  • What are the Adjusted Covered Taxes of the jurisdiction for the Fiscal Year, determined under Article 4.1.1? They may be negative.

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.minimum_rate
15% · 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