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Transitional penalty relief

Applies
FY2024 onwards
Reviewed
Rule
P2-PENREL-2024.1
By

Is there penalty relief for early GloBE returns?

Yes. For fiscal years beginning on or before 31 December 2026, no penalties should apply where the group took reasonable measures to apply the rules.

Per Safe Harbours and Penalty Relief: Global Anti-Base Erosion Rules (Pillar Two), Chapter 3, Transitional Penalty Relief

During the Transition Period no penalties or sanctions should apply in connection with the filing of a GloBE Information Return where a tax administration considers that the MNE has taken reasonable measures to ensure the proper application of the GloBE Rules and any QDMTT. The Transition Period is the Fiscal Years beginning on or before 31 December 2026 but not including a Fiscal Year that ends after 30 June 2028. In practice it does not apply to avoidance, fraud or abuse, and it does not affect the requirement to rectify errors and pay unpaid Top-up Tax with interest for earlier years.

A common understanding among jurisdictions that they give careful consideration to relief, not a rule of law that excludes a penalty.

What the result turns on

Reasonable measures

Not defined. An MNE can show it by acting in good faith and putting appropriate systems in place to understand and comply. The tax administration judges it on the facts and in light of its own rules.

Cases a tax administration may waive

  • Full disclosure of the computation concerned
  • A mistake of fact that is reasonable in the circumstances
  • Errors reasonably attributed to unfamiliarity in the initial years, such as isolated mathematical or transposition errors
  • A requirement that is unclear, with a reasonable interpretation
  • Actions that do not reduce Top-up Tax now or later

What it does not reach

  • Avoidance, fraud or abuse
  • The requirement to rectify errors and pay any unpaid or underpaid Top-up Tax, with interest, for earlier years

The period

Fiscal Years beginning on or before 31 December 2026 and not ending after 30 June 2028, on the 2022 text. The Transitional CbCR Safe Harbour's period was later extended by a year; whether this one was is not confirmed.

Order of testing

  1. 1

    The Transition Period

    Tested first.

  2. 2

    Avoidance, fraud or abuse

    Outside the relief.

  3. 3

    Reasonable measures

    The test the relief turns on.

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 good-faith error in 2026

A Fiscal Year ending 31 December 2026; the MNE took reasonable measures and the facts involve no abuse.

Computed

Transitional penalty relief should be considered as computed: the Fiscal Year is within the Transition Period, the facts do not involve avoidance, fraud or abuse, and you have indicated reasonable measures were taken. The common understanding is that, in those cases, no penalties or sanctions should apply in connection with filing a GloBE Information Return; jurisdictions give careful consideration to it rather than being bound. Relief does not remove the requirement to rectify errors and pay any unpaid or underpaid Top-up Tax, with interest, for earlier years, and whether to apply it is for the tax administration on the facts. Based on what you supplied.

Decided by the reasonable measures

No reasonable measures

The same year where reasonable measures cannot be shown.

Computed

Transitional penalty relief is not indicated as computed: it turns on the MNE having taken reasonable measures to ensure the proper application of the GloBE Rules, and you have indicated that has not been shown. Relief does not remove the requirement to rectify errors and pay any unpaid or underpaid Top-up Tax, with interest, for earlier years, and whether to apply it is for the tax administration on the facts. Based on what you supplied.

Decided by the reasonable measures

After the period

A Fiscal Year beginning 1 January 2027.

Computed

The transitional penalty relief does not cover this Fiscal Year as computed: it begins on 2027-01-01, after 2026-12-31. The common understanding covers Fiscal Years beginning on or before 2026-12-31 but not a Fiscal Year ending after 2028-06-30; the jurisdiction's ordinary penalty rules apply. The period may have been extended since the 2022 text.

Decided by the transition period

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

2 inputs still need your determination:

  • What is the first day of the Fiscal Year, as a calendar date?
  • What is the last day of the Fiscal Year, as a calendar date?

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