Global Minimum Tax Act (S.C. 2024, c. 17, s. 81)

Marginal note:Definition of financial accounting income

• 17 (1) Financial accounting income, for a constituent entity for a fiscal year, means, subject to subsections (2) to (6),

  • (a) for a constituent entity other than a permanent establishment, the net income or loss determined for that constituent entity

    • (i) in the preparation of the consolidated financial statements of the ultimate parent entity of the MNE group that includes the constituent entity, or

    • (ii) under another acceptable financial accounting standard or authorized financial accounting standard, if

      • (A) it is not reasonably practicable to determine the financial accounting income for the constituent entity based on the accounting standard used in the preparation of the consolidated financial statements of the ultimate parent entity,

      • (B) the financial accounts of the constituent entity are maintained based on the other acceptable financial accounting standard or authorized financial accounting standard,

      • (C) the information in those financial accounts is reliable, such that an auditor applying the generally accepted auditing standards of the jurisdiction in which the ultimate parent entity or constituent entity is located (or, in the case of a flow-through entity, the jurisdiction in which the entity was created) would reasonably conclude that the constituent entity has in place processes and controls that are likely to ensure that the information in the financial accounts is fair and accurate, and

      • (D) that amount is adjusted to eliminate any permanent difference greater than €1 million that arises for the fiscal year because the other financial accounting standard is used instead of the financial accounting standard of the ultimate parent entity; and

  • (b) for a constituent entity that is a permanent establishment,

    • (i) if the permanent establishment is described in any of paragraphs (a) to (c) of the definition permanent establishment in subsection 2(1), the amount that

      • (A) is the net income or loss reflected in the separate financial accounts of the permanent establishment, if those financial accounts are prepared in accordance with an acceptable financial accounting standard or in accordance with an authorized financial accounting standard and subject to adjustments to prevent any material competitive distortions, or

      • (B) if the permanent establishment does not have separate financial accounts described in clause (A), would be the net income or loss of that permanent establishment reflected in separate financial accounts prepared on a stand-alone basis in accordance with the accounting standard used in the preparation of the ultimate parent entity’s consolidated financial statements, and

    • (ii) if the constituent entity is a permanent establishment described in paragraph (d) of the definition permanent establishment in subsection 2(1), the net income or loss determined on the assumption that

      • (A) the only income of the permanent establishment is its income that is exempted from tax in the jurisdiction where the main entity in respect of the permanent establishment is located and that is attributable to activities carried on outside the jurisdiction in which the main entity is located, and

      • (B) the only expenses of the permanent establishment are its expenses that are attributable to the activities described in clause (A) and are not deducted for tax purposes in the jurisdiction in which the main entity is located.

• Marginal note:Permanent establishments — adjustment

  (2) The amount that would, in the absence of this subsection, be a permanent establishment’s financial accounting income is adjusted to reflect only the amounts of income and expense that are — or, if paragraph (c) applies, would be — attributable to the permanent establishment (regardless of whether such amount is subject to tax or deductible, as the case may be, in the jurisdiction in which the permanent establishment is located) in accordance with

  • (a) if paragraph (a) of the definition permanent establishment in subsection 2(1) applies, the tax treaty applicable to the permanent establishment;

  • (b) if paragraph (b) of that definition applies, the law of the jurisdiction in which the permanent establishment is located; or

  • (c) if paragraph (c) of that definition applies, Article 7 of the OECD Model Tax Convention.

• Marginal note:Permanent establishments — general rule

  (3) Except as provided by subsection 18(26), the net income or loss of a permanent establishment (other than any portion of that amount that is excluded from the financial accounting income of the permanent establishment because of subsection (2)) is not to be taken into account in determining the GloBE income or loss of the main entity in respect of the permanent establishment.

• Marginal note:No consolidation adjustments

  (4) The financial accounting income of a constituent entity is to include income, expenses, gains and losses (other than amounts excluded from GloBE income or loss because of subsection (5)) arising from transactions between the constituent entity and any other group entity, other than any transactions to which an election under subsection 18(24) applies.

• Marginal note:Profit and loss statement — general rule

  (5) Unless otherwise required under this Act, no amount is included in computing the GloBE income or loss of a constituent entity if it is recognized outside of the profit and loss statement of the constituent entity’s financial statements.

• Marginal note:Financial accounting income — flow-through entity

  (6) If a constituent entity is a particular flow-through entity, the following rules apply in determining the financial accounting income for a fiscal year of the particular flow-through entity and any other group entities in respect of the net income or loss of the particular flow-through entity:

  • (a) amounts in respect of the particular flow-through entity’s net income or loss that are attributable to ownership interests of persons or entities that are not group entities and that hold their ownership interests in the particular flow-through entity directly, or through a tax transparent structure, are not to be included in computing the financial accounting income of any group entity, unless

    • (i) the particular flow-through entity is an ultimate parent entity, or

    • (ii) the particular flow-through entity is owned, directly or through a tax transparent structure, by an ultimate parent entity that is also a flow-through entity, in which case this paragraph does not apply to amounts in respect of the particular flow-through entity’s net income or loss to the extent those amounts are attributable to persons or entities that hold their ownership interests in the particular flow-through entity through that ultimate parent entity;

  • (b) if a particular group entity has an ownership interest in the particular flow-through entity, an amount that, in the absence of this paragraph — and, for greater certainty, after excluding amounts to which paragraph (a) applies and amounts allocated to a permanent establishment in accordance with paragraph (1)(b) — would be included in the financial accounting income of the particular flow-through entity is excluded from its financial accounting income and included in the financial accounting income of the particular group entity in accordance with the particular group entity’s ownership interest (determined having regard only to ownership interests held by group entities) in the particular flow-through entity, to the extent that

    • (i) the particular flow-through entity is not an ultimate parent entity,

    • (ii) the particular flow-through entity is fiscally transparent in relation to the particular group entity,

    • (iii) the particular group entity is not a flow-through entity, other than a reverse hybrid entity or an ultimate parent entity, and

    • (iv) the particular group entity holds its ownership interest in the particular flow-through entity

      • (A) directly, or

      • (B) indirectly, through one or more entities (each referred to in this clause as an “intermediate owner”), if

        • (I) each intermediate owner is fiscally transparent in relation to the particular group entity,

        • (II) where the particular group entity is not a flow-through entity or is a flow-through entity that is an ultimate parent entity, there is no intermediate owner that both

          1 is not a flow-through entity, and

          2 would meet the conditions in this subparagraph and subparagraph (ii) if the references in those subparagraphs to the “particular group entity” were read as references to that intermediate owner, and

        • (III) where the particular group entity is a reverse hybrid entity, there is no intermediate owner that would meet the conditions in this subparagraph and subparagraphs (ii) and (iii) if the references in those subparagraphs to the “particular group entity” were read as references to that intermediate owner;

  • (c) despite paragraph (b), if an amount of the net income or loss of the particular flow-through entity would, in the absence of this paragraph, be included under paragraph (b) in the financial accounting income of a particular group entity (referred to in this paragraph as the “lower-tier entity”) that is a reverse hybrid entity, and would also be included in the financial accounting income of another group entity (referred to in this paragraph as the “upper-tier entity”), that is not a flow-through entity or that is a flow-through entity that is an ultimate parent entity, in relation to an ownership interest the upper-tier entity holds in the particular flow-through entity through the lower-tier entity, the amount is

    • (i) included in the financial accounting income of the upper-tier entity, and

    • (ii) not included in the financial accounting income of the lower-tier entity; and

  • (d) any amount of the net income or loss of the particular flow-through entity that is not excluded in computing its financial accounting income because of paragraph (a) or (b), or subsection (3), is included in the financial accounting income of the particular flow-through entity.

• Marginal note:Flow-through entity — ownership interests

  (7) For the purpose of determining an entity’s financial accounting income under subsection (6), a reference to an ownership interest refers only to an ownership interest that carries rights to profit.