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Financial Accounting Net Income or Loss

Applies
FY2024 onwards
Reviewed
Rule
P2-FANIL-2024.1
By

What is the starting point for GloBE Income?

Each entity's net income in the UPE's consolidated accounts, before eliminations. Another standard may be used if differences over EUR 1 million are conformed.

Per GloBE Model Rules (Pillar Two), December 2021, Article 3.1, Financial Accounts

The GloBE Income or Loss of each Constituent Entity is its Financial Accounting Net Income or Loss for the Fiscal Year, adjusted under Articles 3.2 to 3.5. Financial Accounting Net Income or Loss is the net income or loss determined for the Constituent Entity, before any consolidation adjustments eliminating intra-group transactions, in preparing the Consolidated Financial Statements of the Ultimate Parent Entity. Where it is not reasonably practicable to determine it on that accounting standard, another Acceptable or Authorised Financial Accounting Standard may be used if the entity's financial accounts are maintained on it, the information in them is reliable, and permanent differences in excess of the published amount are conformed to the Ultimate Parent Entity's standard.

The figure is the entity's own bottom line as it went into the group accounts, not its statutory accounts and not the consolidated result. It is the first line of every GloBE Income or Loss computation.

The group's standard is the rule; another standard is an exception

What the figure is

  • The entity's net income or loss after income tax expense, in the Ultimate Parent Entity's accounting standard
  • Before consolidation eliminations: intra-group income and expense stay in
  • In the presentation currency of the Consolidated Financial Statements
  • Not reduced for minority interests in the entity

What is left out

Purchase accounting adjustments held only in the consolidated accounts are not taken into account. Push-down accounting is allowed only for an acquisition before 1 December 2021, and only where the group lacks the records to work from unadjusted carrying values. Other items held only at consolidated level count only where they can be reliably and consistently traced to the entity. Items in Other Comprehensive Income are generally outside the figure.

Another standard — all of these

  • It is not reasonably practicable to use the Ultimate Parent Entity's standard
  • (a) The entity's financial accounts are maintained on the other standard
  • (b) The information in them is reliable
  • (c) Permanent differences in excess of the published amount are conformed

Condition (c) conforms, it does not disqualify

Where the aggregate permanent differences exceed the amount, the items are conformed to the Ultimate Parent Entity's treatment and the other standard is still used. Timing differences are outside the condition. Failing the practicability test, (a) or (b) removes the exception altogether.

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

    The figure used in the Consolidated Financial Statements

    Where the figure is the one determined in preparing the group accounts, it is the starting point.

  3. 3

    Whether the Ultimate Parent Entity's standard is reasonably practicable

    Another standard is available only where it is not.

  4. 4

    The conditions for another accounting standard

    Accounts maintained on that standard, and reliable.

  5. 5

    Permanent differences from the Ultimate Parent Entity's standard

    Above the published amount, the items are conformed.

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.

An entity already on the group standard

A subsidiary whose reporting pack is prepared on the Ultimate Parent Entity's standard for consolidation.

Computed

The starting point is the Financial Accounting Net Income or Loss as you have described it: the net income or loss determined for the Constituent Entity in preparing the Consolidated Financial Statements of the Ultimate Parent Entity, before any consolidation adjustments eliminating intra-group transactions (Article 3.1.2). It is the bottom-line figure after income tax expense, in the presentation currency of those statements, and it is not reduced for minority interests. Purchase accounting adjustments held only in the consolidated accounts are left out. Based on what you supplied.

Decided by the figure used in the consolidated financial statements

A recent acquisition on its old standard

An acquired entity still on its historical standard, with EUR 400,000 of permanent differences.

Computed

The alternative accounting standard may be used as computed, without conforming adjustments: it is not reasonably practicable to use the Ultimate Parent Entity's standard, the accounts are maintained on the alternative standard and are reliable, and the aggregate permanent differences of EUR 400,000 are not in excess of EUR 1,000,000 (Article 3.1.3(c)). The figure is still translated into the presentation currency of the Consolidated Financial Statements. Based on the figures you supplied.

Workings

Aggregate permanent differencesArticle 3.1.3(c) — as supplied; timing differences are outside the condition
EUR 400,000
Amount above which items are conformedArticle 3.1.3(c) — published value for FY2026
EUR 1,000,000

Decided by the permanent differences from the ultimate parent entity's standard

The same, with larger differences

Permanent differences of EUR 2.6 million: the standard can still be used, with the items conformed.

Computed

The alternative accounting standard may be used as computed, with the items giving rise to permanent differences conformed to the Ultimate Parent Entity's standard: it is not reasonably practicable to use that standard, the accounts are maintained on the alternative standard and are reliable, and the aggregate permanent differences of EUR 2,600,000 are in excess of EUR 1,000,000 (Article 3.1.3(c)). Based on the figures you supplied.

Workings

Aggregate permanent differencesArticle 3.1.3(c) — as supplied; timing differences are outside the condition
EUR 2,600,000
Amount above which items are conformedArticle 3.1.3(c) — published value for FY2026
EUR 1,000,000

Decided by the permanent differences from the ultimate parent entity's standard

Convenience is not impracticability

A group that could convert the accounts but would rather not.

Computed

The Ultimate Parent Entity's accounting standard is required as computed: Article 3.1.3 allows another standard only where it is not reasonably practicable to determine the figure on the standard used in the Consolidated Financial Statements, and you have indicated that it is. Based on what you supplied.

Decided by the whether the ultimate parent entity's standard is reasonably practicable

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 figure the net income or loss determined for the Constituent Entity in preparing the Consolidated Financial Statements of the Ultimate Parent Entity, before consolidation adjustments eliminating intra-group transactions?

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.alternative_standard_permanent_differences
EUR 1,000,000 · 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