The importance of the “once out, always out” rule
In addition, the Transitional CbCR Safe Harbor features the ‘once out, always out’ rule, whereby a jurisdiction not meeting any of the safe harbor provisions in one period or meeting the provisions but choosing not to apply the safe harbors for certain jurisdictions cannot benefit from any of the safe harbors in a subsequent period.
Temporary reduction of the burden and impact on the Country-by-Country Report
If a group can invoke one or more of the safe harbor provisions in a particular jurisdiction in a certain financial year in the transitional period, no top-up tax will be due for that jurisdiction resulting in a lower tax burden. Moreover, the MNE avoids the complexity of completing the GloBE Information Return for that jurisdiction, which significantly reduces the administrative burden.
Furthermore, the total revenue and the profit (loss) before income tax follow directly from an MNEs Qualified CbC Report prepared based on financial statements that meet certain criteria. Consequently, whereas previously the CbCR was merely seen as an annual compliance exercise and MNE groups might previously have taken some practical shortcuts regarding the quantitative and/or qualitative information included in the CbCR, this report will now impact the GloBE compliance burden and the effective tax rate during the transitional period. The quality of the CbCR and its pro-active availability will therefore become very important during the transition period.