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Included Revaluation Method Gain or Loss

Applies
FY2024 onwards
Reviewed
Rule
P2-IRMG-2024.1
By

Are property revaluation gains included in GloBE Income?

Yes. Revaluation gains or losses on property, plant and equipment held in OCI and never recycled to profit or loss are included, net of related taxes.

Per GloBE Model Rules (Pillar Two), December 2021, Article 3.2.1(d), Included Revaluation Method Gain or Loss

A Constituent Entity's Financial Accounting Net Income or Loss is adjusted for Included Revaluation Method Gain or Loss: the net gain or loss, increased or decreased by any associated Covered Taxes, for the Fiscal Year in respect of all property, plant and equipment that arises under an accounting method or practice that periodically adjusts the carrying value of such property to its fair value, records the changes in value in Other Comprehensive Income, and does not subsequently report the gains or losses recorded in Other Comprehensive Income through profit and loss.

It is the exception to the general position that Other Comprehensive Income is outside GloBE Income. Without it, depreciation would be deducted on a revalued amount whose gain was never income.

The one item of OCI that comes in

All three conditions

  • (a) The method periodically adjusts the carrying value of the property to fair value
  • (b) The changes in value are recorded in Other Comprehensive Income
  • (c) The gains or losses are not later reported through profit and loss

Gross of tax

Where Other Comprehensive Income shows the gain net of tax, the associated Covered Taxes are added back, so the tax is not both deducted and counted in the Effective Tax Rate. The tax itself is taken into account in Adjusted Covered Taxes — but a deferred tax liability on a revaluation does not increase them where the eventual sale will be exempt.

Year by year

The gain or loss is brought in annually, or on each revaluation if less frequent. Revaluation losses and the extra depreciation on the revalued amount are then allowed, to the extent they relate to gains brought in.

The realisation principle election defers it

Where an Article 3.2.5 election covers the property, the gains and losses are deferred until disposal, depreciation ignores the revaluation, and the associated taxes are deferred with them.

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 definition of Included Revaluation Method Gain or Loss

    All three conditions of the accounting method.

  3. 3

    The realisation principle election

    An Article 3.2.5 election covering the property defers the item.

  4. 4

    The gain or loss for the Fiscal Year

    The OCI figure, with the associated Covered Taxes added back.

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.

Land and buildings revalued upward

EUR 8 million recorded in Other Comprehensive Income after EUR 2 million of deferred tax.

Computed

An Included Revaluation Method Gain of EUR 10,000,000 is brought into GloBE Income or Loss as computed (Article 3.2.1(d)): the EUR 8,000,000 recorded in Other Comprehensive Income for the year, adjusted by EUR 2,000,000 of associated Covered Taxes so that the tax is not both deducted and counted. The tax itself is taken into account in Adjusted Covered Taxes — unless the eventual sale will be exempt, in which case a deferred tax liability on the revaluation does not increase them. Based on the figures you supplied.

Workings

Net gain or (loss) recorded in Other Comprehensive IncomeArticle 10.1 — for the Fiscal Year, on all property, plant and equipment under the method
EUR 8,000,000
Associated Covered TaxesArticle 10.1 — the tax the OCI figure is net of, added back
EUR 2,000,000
Included Revaluation Method Gain or (Loss)Article 3.2.1(d) — added to Financial Accounting Net Income or Loss
EUR 10,000,000

Decided by the gain or loss for the fiscal year

The same property under a realisation election

With an Article 3.2.5 election limited to tangible assets in force.

Computed

Nothing is included under Article 3.2.1(d) for the Fiscal Year as computed: a realisation principle election under Article 3.2.5 covers the property, so the gains and losses in Other Comprehensive Income are deferred until the asset is disposed of, depreciation is determined without the revaluation, and the associated Covered Taxes are deferred likewise. Based on what you supplied.

Decided by the realisation principle election

An item that recycles

A gain held in Other Comprehensive Income that is later reported through profit and loss.

Computed

No adjustment is made under Article 3.2.1(d) as computed: the gains or losses are later reported through profit and loss (paragraph (c)). The definition requires all three, so the item is not an Included Revaluation Method Gain or Loss. An item recorded in profit or loss is already in Financial Accounting Net Income or Loss, and other items in Other Comprehensive Income are generally outside GloBE Income or Loss. Based on what you supplied.

Decided by the definition of included revaluation method gain or loss

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:

  • Does the accounting method or practice periodically adjust the carrying value of the property, plant and equipment to its fair value?
  • Are the changes in value recorded in Other Comprehensive Income?
  • Are the gains or losses recorded in Other Comprehensive Income subsequently reported through profit and loss?

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.

Sources

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Reference, not tax advice.

Pankaj Agarwal — Tax Technology Leader