6‑65 Meaning of GloBE Reorganisation and6‑65 Meaning of GloBE Reorganisation and Non‑qualifying Gain or Loss

6‑65 Meaning of GloBE Reorganisation and Non‑qualifying Gain or Loss

(1) A transformation (see subsection (2)), or transfer of assets and liabilities (such as a merger, demerger, liquidation or other similar transaction), is a GloBE Reorganisation if all of the following apply: (a) the transformation or transfer involves the disposal or acquisition of assets or liabilities by a Constituent Entity of an MNE Group; (b) if no consideration is provided for the transformation or transfer—the issuance of an equity interest as consideration for the transformation or transfer would have no economic significance; (c) if consideration is provided for the transfer—the consideration is, in whole or in significant part: (i) where the transfer is a liquidation—the cancellation of equity interests of the Entity that is the subject of the liquidation; or (ii) otherwise—equity interests issued by the Entity acquiring the assets or liabilities (the acquiror) or by a person connected with that Entity; (d) the gain or loss on the disposed assets or liabilities by the Entity disposing the assets or liabilities (the transferor) is not subject to Tax, in whole or in part; (e) the tax laws of the jurisdiction in which the acquiror is located require the acquiror to compute taxable income arising from the acquisition using the transferor’s tax basis in the assets or liabilities, adjusted for the amount covered by subsection (4). (2) For the purposes of subsection (1), a transformation is a change in the form of a business in which the transferor or acquiror is involved, such as a change from a partnership to a corporation. (3) To avoid doubt, for the purposes of subsection (1), a transformation or transfer includes a contribution of assets to the capital of an existing Entity, where the Entity does not issue new or additional Ownership Interests in exchange for the contributed assets. (4) For the purposes of paragraph (1)(e), the amount covered by this subsection is the lesser of the following: (a) the portion of the gain or loss of the transferor arising in connection with the GloBE Reorganisation that is subject to Tax in the jurisdiction in which the transferor is located; (b) the transferor’s financial accounting gain or loss arising in connection with the GloBE Reorganisation. This amount is the transferor’s Non‑qualifying Gain or Loss in relation to the GloBE Reorganisation.

Note: The Non‑qualifying Gain or Loss is:

(a) if the amount mentioned in paragraph (a) or (b) is a gain—a positive amount; or
(b) if the amount mentioned in paragraph (a) or (b) is a loss—a negative amount.