Corporate Taxation

Administrative Guidance clarifies the treatment of deferred tax assets under GloBE

On January 15, 2025, the OECD/G20 Inclusive Framework published Administrative Guidance of practical importance for the application of Art. 9.1 of the GloBE Model Rules. The new Administrative Guidance focuses on “arrangements” and “similar Events” (e.g., the subsequent exercise of elections) that have led to the recognition of deferred tax assets. The principles set out in the Administrative Guidance will be further clarified in the Commentary on the GloBE Model Rules in the future. The corresponding clarifications are also reflected in the Administrative Guidance itself.

In addition, the OECD has published the “Central Record of Legislation with Transitional Qualified Status.” This Administrative Guidance confirms that the Swiss top-up tax meets the requirements for the application of the QDMTT Safe Harbour as of January 1, 2024. This is of great importance for multinational enterprises operating in Switzerland, so that profits taxed in Switzerland are not additionally subject to a foreign IIR or UTPR (with certain limitations, see below).

Art. 9.1 GloBE Model Rules

Art. 9.1 of the GloBE Model Rules contains transitional rules defining how existing deferred tax positions are to be dealt with in a transition year and in subsequent years.

Whereas under Art. 9.1.1, in general, the deferred tax assets (“DTAs”) and deferred tax liabilities (“DTLs”) recognized or disclosed in the financial accounts of all constituent entities (“CEs”) in a transition year can be taken into account, Art. 9.1.2 and 9.1.3 exclude or limit the amount of deferred tax assets considered under certain circumstances.

Clarification of the GloBE Model Rules

The OECD emphasizes that the transitional rules contained in Art. 9.1 of the GloBE Model Rules are not intended to give companies the opportunity to carry out transactions affecting deferred tax positions in order to shield low-taxed income from the minimum tax.

Pursuant to Art. 9.1.2, DTAs arising from items that are excluded in the calculation of the GloBE income or loss are excluded from the calculation under Art. 9.1.1 if the DTAs arose from a transaction that took place after November 30, 2021.

In the new sections of the Commentary, three types of transactions are identified that give rise to deferred tax positions which are excluded from (i) the total amount of the deferred tax adjustment under Art. 4.4 and (ii) the calculation of simplified covered taxes for the transitional CbCR Safe Harbour (see Commentary nos. 8.5 ff. on Art. 9.1.2 GloBE Model Rules):

  • A deferred tax asset that is attributable to a governmental arrangement concluded or amended after 30 November 2021 where such governmental arrangement provides the taxpayer with a specific entitlement to a tax credit or other tax relief (including, for example, a tax basis step-up) that does not arise independently of the arrangement;
  • A deferred tax asset that is attributable to an election or choice exercised or changed by a Constituent Entity after 30 November 2021 and that retroactively changes the treatment of a transaction in determining its taxable income in a tax year for which an assessment by the tax authority was already made or a tax return was already filed;
  • A deferred tax asset or a deferred tax liability arising from a difference in the tax basis or value and accounting carrying value of an asset or liability if the tax basis or value was established pursuant to a corporate income tax that was enacted by a jurisdiction that did not have a pre-existing corporate income tax and that was enacted after 30 November 2021 and before the Transition Year.

Tax credits or other tax benefits that arise independently of a governmental arrangement are not covered by Art. 9.1.2. This is the case when tax credit or other tax relief arises independently of the governmental arrangement if no critical aspect of the credit or relief, such as the eligibility or amount, relies on discretion exercised by the General Government. The mere fact that granting this tax credit requires a governmental decision or acknowledgement that the taxpayer has satisfied or is obligated to satisfy the statutory criteria for that credit or other tax relief does not in itself constitute a discretionary granting of a tax credit or tax benefit.

Grace Period for Harmful Deferred Tax Positions

The Administrative Guidance provides for a grace period for harmful deferred tax positions, during which a share of up to 20% can be taken into account for the adjustments to deferred taxes under Art. 4.4 or for the simplified tax calculation under the CbCR Safe Harbour. This grace period applies to fiscal years beginning on or after January 1, 2024, but does not apply to fiscal years ending after June 30, 2027. However, the Commentary excludes from this grace period those harmful transactions that are carried out after November 18, 2024.

Implications for the QDMTT Safe Harbour and the Transitional CbCR Safe Harbour

The Inclusive Framework points out in the Administrative Guidance that top-up taxes levied by countries are only considered qualifying if they are applied in accordance with the Administrative Guidance. If governments have granted tax benefits after November 30, 2021, this generally leads to a non-qualification of the local DMTT. However, the members of the Inclusive Framework have agreed that the transitional qualified status of the QDMTT and the QDMTT Safe Harbour will be accepted if the countries in question neutralize the deferred tax effects in accordance with the Administrative Guidance.

If the countries concerned do not make the corresponding adjustments in the specific case (i.e., for example, neutralizing the deferred tax effects during the assessment process), the MNE in question cannot claim the QDMTT Safe Harbour for that country (“switch-off rule”).

For purposes of the CbCR Safe Harbour, any deferred tax expenses resulting from the harmful transactions must be neutralized. However, during the grace period, these deferred tax expenses can at least be utilized to a limited extent.

Focus on Incentive Measures

The Administrative Guidance also explains that the Inclusive Framework is working on rules to identify incentive measures that are considered harmful in connection with the introduction of the GloBE minimum tax.

Relevance for Taxpayers in Switzerland

All taxpayers should review their pre-existing deferred tax positions and analyze whether, in particular, their DTAs are affected by the new Administrative Guidance.

This analysis is especially relevant because, in many cases, work on the year-end closing for the first year under GloBE has begun and top-up tax calculations are now being performed on the basis of the current figures.