Pillar Two: PPA adjustments and

the Transitional CbCR Safe

Harbour
Leveraging PPA adjustments within the Transitional
CbCR Safe Harbour can help alleviate the Pillar Two
compliance burdens for organizations.
 acquisition date. This allocation process organizations may have already
Key takeaways: is mandated by accounting standards evaluated their eligibility for it. It is highly
such as IFRS 3. advisable to revisit this analysis with a
• PPA adjustments can be focus on potentially leveraging PPA
incorporated into the While the main GloBE Rules generally adjustments. Broadly, this would
Transitional CbCR Safe Harbour require PPA adjustments to be excluded encompass:
provided certain conditions are when calculating the effective tax rate
met and adjustments are made. for a jurisdiction, the OECD’s recent 1. Understanding the nature of PPA
guidance indicates that PPA adjustments adjustments and how they are
• Organizations should assess reflected in the reporting package
can be considered for the purposes of
whether PPA adjustments
the safe harbour provided certain and financial statements.
should be incorporated now as
conditions and adjustments are made.
there is a limited window of 2. Assessing and modelling the impact
opportunity. Incorporating PPA adjustments into safe of PPA adjustments on the
harbour calculations can be Transitional CbCR Safe Harbour
advantageous, especially for jurisdictions 3. Making the necessary adjustments
that would otherwise not meet the safe
Background harbour criteria. Specifically, if PPA
to comply with the consistent
The GloBE Rules aim to address the tax reporting condition. There may be a
adjustments result in a reduced pre-tax limited window of opportunity to
challenges arising from the digital profit for a given country, this can
economy by imposing top-up taxes on ensure compliance with this
significantly enhance the likelihood of condition.
multinational groups operating in qualifying for the safe harbour. This
countries with an effective tax rate strategic inclusion underscores the Given the significantly reduced
below 15%. The GloBE Rules include the importance of assessing the impacts of compliance burden for jurisdictions that
Transitional Country-by-Country Report PPA adjustments on a country-by- pass the Transitional CbCR Safe Harbour,
(“CbCR”) Safe Harbour which is designed country basis. organizations should give due
to reduce the compliance burden in consideration to the impact of PPA
lower-risk countries for up to three It appears that groups have the adjustments and assess whether it would
years. Following feedback from the discretion to apply PPA adjustments be worth taking the steps to ensure they
business community, the OECD released selectively across each jurisdiction. This can be included in the safe harbour.
additional administrative guidance in flexibility is derived from the fact that
December 2023 to clarify certain aspects groups are permitted to utilize various
of this safe harbour. types of Qualified Financial Statements
for each country.
PPAs in the context of the
Transitional CbCR Safe Groups may need to take immediate
action to leverage PPA adjustments
Harbour within the safe harbour. Specifically, PPA
One notable aspect of OECD’s December
adjustments are eligible for safe harbour
2023 administrative guidance is the
consideration only if they are included in
confirmation that Purchase Price
the group's CbCR for fiscal years starting
Allocation (“PPA”) adjustments can be
post-31 December 2022, adhering to the
included within the ambit of the safe
'consistent reporting condition'. Groups
harbour calculations.
that are yet to incorporate PPA
adjustments in their CbCRs face a
PPA adjustments are applicable in a
narrowing window to modify their CbCR
business combination. In general, where
practices accordingly.
one company acquires another, the
acquirer must allocate the purchase
price among the acquiree's assets and What needs to be done?
liabilities to their fair values at the Since the introduction of the safe
harbour in December 2022,

02
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Other considerations Contact us:

For completeness, groups should
also consider the following:

• Whether any Hybrid Arbitrage

Arrangements that could impact
the ability to utilize the safe
harbour. Jan Roderick Van Abbe
• Whether the CbCR is qualified.
Partner
Email: jvanabbe@deloitte.com
We have a checklist and
questionnaire to help you assess
this.

• Establishing governance and

processes around CbCR
preparation.

• Overhauling the CbCR

Tian Leong
preparation strategy in light of Senior Manager
Pillar Two as well as other Email: tileong@deloitte.com
international developments
(e.g., Public CbCR in the EU)

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