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Transition Year

Applies
FY2024 onwards
Reviewed
Rule
P2-TY-2024.1
By

What is the Pillar Two Transition Year?

The first year a group is in scope in a jurisdiction: the latest of entering scope, first having an entity there, and leaving the CbCR safe harbour there.

Per GloBE Model Rules (Pillar Two), December 2021, Article 10.1, definition of Transition Year

The Transition Year, for a jurisdiction, is the first Fiscal Year in which the MNE Group comes within the scope of the GloBE Rules in respect of that jurisdiction. It is the latest of the date the Group first came within scope, the date it first had Constituent Entities located in the jurisdiction, and, where it benefited from the Transitional CbCR Safe Harbour there, the first Fiscal Year in which it no longer qualified for or applied it.

The deferred tax attributes at the start of the Transition Year are imported into the GloBE computation under Article 9.1.1 and used from then on.

What catches people

It is decided jurisdiction by jurisdiction

A group has a Transition Year for each jurisdiction in which it operates, and they differ.

'In respect of' the jurisdiction

The definition says 'in respect of that jurisdiction' and not 'of that jurisdiction', so a group's Transition Year for a jurisdiction can be started by another jurisdiction's GloBE Rules, not only its own.

A later entry

A group that first has Constituent Entities in a jurisdiction after it first came within scope has a later Transition Year there.

The Transitional CbCR Safe Harbour

Where the group benefited from it in a jurisdiction, the Transition Year there is the first Fiscal Year in which it no longer qualifies for or applies it. For an Investment Entity, the first year it does not apply to that entity; a Joint Venture or JV Subsidiary is treated as a separate jurisdiction.

Order of testing

  1. 1

    The first Fiscal Year in scope in respect of the jurisdiction

    The latest of the dates that hold the year 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.

The first year in scope

A group first in scope for a year beginning 1 January 2024 with entities in the jurisdiction since 2020.

Computed

This is the Transition Year for the jurisdiction as computed: it is the Fiscal Year beginning 2024-01-01, the latest of the dates that hold it back — the group first came within the scope of the GloBE Rules. Its opening deferred tax attributes are imported under Article 9.1.1. The Transition Year is decided for each jurisdiction separately, and a group's Transition Year for a jurisdiction can be started by the GloBE Rules of another jurisdiction. Based on the dates you supplied.

Decided by the first fiscal year in scope in respect of the jurisdiction

A jurisdiction entered later

The same group first has entities in the jurisdiction in a year beginning 1 January 2026, so 2024 is before its Transition Year there.

Computed

This is before the Transition Year for the jurisdiction as computed: the Transition Year begins 2026-01-01, the latest of the dates that hold it back — the group first had Constituent Entities located in the jurisdiction. No GloBE calculation is made for the jurisdiction for this Fiscal Year on that account. The Transition Year is decided for each jurisdiction separately, and a group's Transition Year for a jurisdiction can be started by the GloBE Rules of another jurisdiction. Based on the dates you supplied.

Decided by the first fiscal year in scope in respect of the jurisdiction

A safe harbour moves it

The group relied on the Transitional CbCR Safe Harbour in the jurisdiction until the year beginning 1 January 2027, which is its Transition Year there.

Computed

This is the Transition Year for the jurisdiction as computed: it is the Fiscal Year beginning 2027-01-01, the latest of the dates that hold it back — the Transitional CbCR Safe Harbour first no longer applied there (Annex A, Chapter 1, paragraph 25(b)). Its opening deferred tax attributes are imported under Article 9.1.1. The Transition Year is decided for each jurisdiction separately, and a group's Transition Year for a jurisdiction can be started by the GloBE Rules of another jurisdiction. Based on the dates you supplied.

Decided by the first fiscal year in scope in respect of the jurisdiction

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

4 inputs still need your determination:

  • What is the first day of the Fiscal Year being tested, as a calendar date?
  • What is the first day of the first Fiscal Year in which the MNE Group came within the scope of the GloBE Rules — in any jurisdiction? See the revenue test in Article 1.1.
  • What is the first day of the first Fiscal Year in which the group had Constituent Entities located in this jurisdiction?
  • Did the group benefit from the Transitional CbCR Safe Harbour in this jurisdiction in any 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.

Sources

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Reference, not tax advice.

Pankaj Agarwal — Tax Technology Leader