§ 18 — Substance‑based income exclusion for constituent entities other than special entities

18.—(1) For the purpose of section 16(6), the substance‑based income exclusion for the constituent entities (not being special entities) of an MNE group located in a jurisdiction for a financial year is determined by the formula A + B, where —(a)

A is the sum of the payroll carve‑out amount for each of those constituent entities for that financial year; and

(b)

B is the sum of the tangible asset carve‑out amount for each of those entities for that financial year.

(2) In subsection (1), the payroll carve‑out amount of a constituent entity for a financial year is the applicable percentage in the Second Schedule of the eligible payroll costs of that constituent entity for that financial year.

(3) In subsection (1), the tangible asset carve‑out amount of a constituent entity for a financial year is the applicable percentage in the Second Schedule of the carrying value of the eligible tangible assets of that constituent entity for that financial year.

(4) In this section —“carrying value”, in relation to an eligible tangible asset of a constituent entity of an MNE group for a financial year, means the average of —(a)

the value of the asset recorded at the start of the financial year; and

(b)

the value of the asset recorded at the end of the financial year,

for the purpose of preparing the consolidated financial statements of the ultimate parent entity of the MNE group, where each such value —

(c)

takes into account the effects of accumulated depreciation, amortisation or depletion, impairment losses (or any reversal of any impairment loss that does not cause the value of the asset to be greater than what it would have been had the impairment loss not been recognised), and any capitalised amount of payroll costs, purchase accounting adjustments and elimination adjustments attributable to inter‑company sales; but

(d)

does not include any increase in the value of the asset or any increase in the accumulated depreciation of the asset recorded for the purposes of preparing the consolidated financial statements of the ultimate parent entity of the MNE group from time to time arising from any revaluation of the asset;

“eligible employee”, in relation to a constituent entity of an MNE group, means —(a)

an employee of that constituent entity (including a part‑time employee); or

(b)

an independent contractor participating in the ordinary operating activities of the constituent entity, or the MNE group under the direction and control of the MNE group,

who performs activities for the MNE group in the jurisdiction in which the constituent entity is located;

“eligible payroll costs”, in relation to a constituent entity for a financial year, means —(a)

expenditure on employee compensation (including salaries, wages, stock‑based compensation, employee insurance, contributions to pension or provident funds, and other expenditure that provide a direct and separate personal benefit) for its eligible employees;

(b)

expenditure on payroll and employment taxes for those employees; and

(c)

social security contributions by the employer and similar payments for those employees,

recorded in the financial statements used to determine the constituent entity’s FANIL for that financial year, but does not include —

(d)

costs taken into account in the tangible asset carve‑out amount of the constituent entity; and

(e)

any prescribed amount of the costs of the constituent entity attributable to any income from international shipping activities or ancillary international shipping activities (as defined in the regulations) in the manner prescribed in the regulations;

“eligible tangible asset”, in relation to a constituent entity, means —(a)

any property, plant or equipment located in the jurisdiction in which the constituent entity is located;

(b)

natural resources located in that jurisdiction;

(c)

a right to use a tangible asset located in that jurisdiction under a lease; or

(d)

a licence granted by or similar arrangement made with the government of that jurisdiction for the use of immovable property or exploitation of natural resources in that jurisdiction where significant investment in tangible assets is expected under the licence or arrangement,

but does not include —

(e)

any property (including land or buildings) held for sale, lease or investment, other than such property as may be prescribed in the regulations; and

(f)

such asset used to generate any income from international shipping activities or ancillary international shipping activities (as defined in the regulations) as may be prescribed in the regulations.

(5) For the purpose of this section, the eligible payroll costs for a financial year, and the eligible tangible assets, of a constituent entity that is a main entity exclude (respectively) the eligible payroll costs for that financial year, and the eligible tangible assets, of its permanent establishment.

(6) In subsection (5), the eligible payroll costs for a financial year, and the eligible tangible assets, of a permanent establishment are the respective eligible payroll costs for that financial year and the eligible tangible assets taken into account in any separate financial accounts for the permanent establishment, after making the adjustments required under the regulations.

(7) For the purposes of subsections (2) and (3), where a proportion of the FANIL for a financial year of a flow‑through entity (X) (not being the ultimate parent entity of the MNE group) is allocated to a constituent entity (Y) of an MNE group under paragraph 6(9)(b) or (c)(i) of the First Schedule —(a)

the same proportion of the eligible payroll costs or carrying value of the eligible tangible assets of X for that financial year is also allocated to Y, if the eligible employees or eligible tangible assets of X (as the case may be) are located in the same jurisdiction as Y; and

(b)

any remaining eligible payroll costs or carrying value of the eligible tangible assets of X is disregarded in computing X’s payroll carve‑out amount or tangible asset carve‑out amount (as the case may be) for that financial year.

(8) For the purposes of subsections (2) and (3), where a proportion of the FANIL for a financial year of a flow‑through entity (X) (being the ultimate parent entity of the MNE group) is allocated to X under paragraph 6(12)(f) of the First Schedule, and the eligible employees or eligible tangible assets of X are located in the same jurisdiction as X, then only that proportion of its eligible payroll costs or carrying value of its eligible tangible assets (as the case may be) for that financial year is treated as its eligible payroll costs or carrying value of its eligible tangible assets (as the case may be) for that financial year.

(9) Where the filing entity of an MNE group so elects in a GloBE information return (whether filed in Singapore or another jurisdiction) for a financial year, the substance‑based income exclusion for the constituent entities (not being special entities) of the MNE group located in a jurisdiction for that financial year is treated as nil.

(10) An MNE group may determine the substance‑based income exclusion for the constituent entities (not being special entities) of the MNE group located in a jurisdiction for a financial year by taking into account only the amount of —(a)

some (and not all) of the eligible payroll costs of those constituent entities for that financial year; and

(b)

some (and not all) of the carrying value of the eligible tangible assets of those constituent entities for that financial year.

(11) The Minister may make regulations under section 84 to provide for further adjustments to the substance‑based income exclusion (or any matter used for its computation) for any description of constituent entities of an MNE group located in a jurisdiction for a financial year in accordance with the GloBE rules.

—(1) For the purpose of section 16(6), the substance‑based income exclusion for the constituent entities (not being special entities) of an MNE group located in a jurisdiction for a financial year is determined by the formula A + B, where —(a)

A is the sum of the payroll carve‑out amount for each of those constituent entities for that financial year; and

(b)

B is the sum of the tangible asset carve‑out amount for each of those entities for that financial year.

(2) In subsection (1), the payroll carve‑out amount of a constituent entity for a financial year is the applicable percentage in the Second Schedule of the eligible payroll costs of that constituent entity for that financial year.

(3) In subsection (1), the tangible asset carve‑out amount of a constituent entity for a financial year is the applicable percentage in the Second Schedule of the carrying value of the eligible tangible assets of that constituent entity for that financial year.

(4) In this section —“carrying value”, in relation to an eligible tangible asset of a constituent entity of an MNE group for a financial year, means the average of —(a)

the value of the asset recorded at the start of the financial year; and

(b)

the value of the asset recorded at the end of the financial year,

for the purpose of preparing the consolidated financial statements of the ultimate parent entity of the MNE group, where each such value —

(c)

takes into account the effects of accumulated depreciation, amortisation or depletion, impairment losses (or any reversal of any impairment loss that does not cause the value of the asset to be greater than what it would have been had the impairment loss not been recognised), and any capitalised amount of payroll costs, purchase accounting adjustments and elimination adjustments attributable to inter‑company sales; but

(d)

does not include any increase in the value of the asset or any increase in the accumulated depreciation of the asset recorded for the purposes of preparing the consolidated financial statements of the ultimate parent entity of the MNE group from time to time arising from any revaluation of the asset;

“eligible employee”, in relation to a constituent entity of an MNE group, means —(a)

an employee of that constituent entity (including a part‑time employee); or

(b)

an independent contractor participating in the ordinary operating activities of the constituent entity, or the MNE group under the direction and control of the MNE group,

who performs activities for the MNE group in the jurisdiction in which the constituent entity is located;

“eligible payroll costs”, in relation to a constituent entity for a financial year, means —(a)

expenditure on employee compensation (including salaries, wages, stock‑based compensation, employee insurance, contributions to pension or provident funds, and other expenditure that provide a direct and separate personal benefit) for its eligible employees;

(b)

expenditure on payroll and employment taxes for those employees; and

(c)

social security contributions by the employer and similar payments for those employees,

recorded in the financial statements used to determine the constituent entity’s FANIL for that financial year, but does not include —

(d)

costs taken into account in the tangible asset carve‑out amount of the constituent entity; and

(e)

any prescribed amount of the costs of the constituent entity attributable to any income from international shipping activities or ancillary international shipping activities (as defined in the regulations) in the manner prescribed in the regulations;

“eligible tangible asset”, in relation to a constituent entity, means —(a)

any property, plant or equipment located in the jurisdiction in which the constituent entity is located;

(b)

natural resources located in that jurisdiction;

(c)

a right to use a tangible asset located in that jurisdiction under a lease; or

(d)

a licence granted by or similar arrangement made with the government of that jurisdiction for the use of immovable property or exploitation of natural resources in that jurisdiction where significant investment in tangible assets is expected under the licence or arrangement,

but does not include —

(e)

any property (including land or buildings) held for sale, lease or investment, other than such property as may be prescribed in the regulations; and

(f)

such asset used to generate any income from international shipping activities or ancillary international shipping activities (as defined in the regulations) as may be prescribed in the regulations.

(5) For the purpose of this section, the eligible payroll costs for a financial year, and the eligible tangible assets, of a constituent entity that is a main entity exclude (respectively) the eligible payroll costs for that financial year, and the eligible tangible assets, of its permanent establishment.

(6) In subsection (5), the eligible payroll costs for a financial year, and the eligible tangible assets, of a permanent establishment are the respective eligible payroll costs for that financial year and the eligible tangible assets taken into account in any separate financial accounts for the permanent establishment, after making the adjustments required under the regulations.

(7) For the purposes of subsections (2) and (3), where a proportion of the FANIL for a financial year of a flow‑through entity (X) (not being the ultimate parent entity of the MNE group) is allocated to a constituent entity (Y) of an MNE group under paragraph 6(9)(b) or (c)(i) of the First Schedule —(a)

the same proportion of the eligible payroll costs or carrying value of the eligible tangible assets of X for that financial year is also allocated to Y, if the eligible employees or eligible tangible assets of X (as the case may be) are located in the same jurisdiction as Y; and

(b)

any remaining eligible payroll costs or carrying value of the eligible tangible assets of X is disregarded in computing X’s payroll carve‑out amount or tangible asset carve‑out amount (as the case may be) for that financial year.

(8) For the purposes of subsections (2) and (3), where a proportion of the FANIL for a financial year of a flow‑through entity (X) (being the ultimate parent entity of the MNE group) is allocated to X under paragraph 6(12)(f) of the First Schedule, and the eligible employees or eligible tangible assets of X are located in the same jurisdiction as X, then only that proportion of its eligible payroll costs or carrying value of its eligible tangible assets (as the case may be) for that financial year is treated as its eligible payroll costs or carrying value of its eligible tangible assets (as the case may be) for that financial year.

(9) Where the filing entity of an MNE group so elects in a GloBE information return (whether filed in Singapore or another jurisdiction) for a financial year, the substance‑based income exclusion for the constituent entities (not being special entities) of the MNE group located in a jurisdiction for that financial year is treated as nil.

(10) An MNE group may determine the substance‑based income exclusion for the constituent entities (not being special entities) of the MNE group located in a jurisdiction for a financial year by taking into account only the amount of —(a)

some (and not all) of the eligible payroll costs of those constituent entities for that financial year; and

(b)

some (and not all) of the carrying value of the eligible tangible assets of those constituent entities for that financial year.

(11) The Minister may make regulations under section 84 to provide for further adjustments to the substance‑based income exclusion (or any matter used for its computation) for any description of constituent entities of an MNE group located in a jurisdiction for a financial year in accordance with the GloBE rules.