Article 3.2. Adjustments to Determine the Pillar Two Income or Loss
3.2.1 A Constituent Entity’s Financial Accounting Net Income or Loss is adjusted for the following
items to arrive at that Entity’s Pillar Two Income or Loss:
(a) Net Taxes Expense;
(b) Excluded Dividends;
(c) Excluded Equity Gain or Loss;
(d) Included Revaluation Method Gain or Loss;
(e) Gain or loss from disposition of assets and liabilities excluded under Article 6.3;
(f) Asymmetric Foreign Currency Gains or Losses;
(g) Policy Disallowed Expenses;
(h) Prior Period Errors and Changes in Accounting Principles;
(i) Accrued Pension Expense;
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(j) Accrued Pension Income; and
(k) Excluded Insurance Reserves Expense.
3.2.2 At the election of the Filing Constituent Entity, a Constituent Entity may substitute in the computation
of its Pillar Two Income or Loss the amount of stock-based compensation allowed as a deduction in
the computation of its taxable income in the UAE for the amount expensed in its financial accounts for
a cost or expense of such Constituent Entity that was paid with stock-based compensation, to the
extent that such deduction is allowed under the Federal Decree-Law No. 47 of 2022. If the stock-
based compensation expense arises in connection with an option that expires without exercise, the
Constituent Entity must include the total amount previously deducted in the computation of its Pillar
Two Income or Loss for the Fiscal Year in which the option expires. The election is a Five-Year
Election and must be applied consistently to the stock-based compensation of all Constituent Entities
located in the UAE for the year in which the election is made and all subsequent Fiscal Years. If the
election is made in a Fiscal Year after some of the stock-based compensation of a transaction has
been recorded in the financial accounts, the Constituent Entity must include in the computation of its
Pillar Two Income or Loss for that Fiscal Year an amount equal to the excess of the cumulative
amount allowed as an expense in the computation of its Pillar Two Income or Loss in previous Fiscal
Years over the cumulative amount that would have been allowed as an expense if the election had
been in place in those Fiscal Years. If the election is revoked, the Constituent Entity must include in
the computation of its Pillar Two Income or Loss for the revocation year the amount deducted
pursuant to the election that exceeds financial accounting expense accrued in respect of the stock-
based compensation that has not been paid.
3.2.3 Transactions between Constituent Entities are subject to the following:
(a) when a transaction between Constituent Entities located in different Jurisdictions is not recorded
in the same amount in the financial accounts of both Constituent Entities, or an asset is
transferred at the disposing entity’s carrying value or is not recorded consistently with the Arm’s
Length Principle, the Pillar Two Income or Loss of the Constituent Entities that are party to the
transaction must be adjusted so that the transaction is recorded in the same amount and
consistently with the Arm’s Length Principle unless the adjustment is a unilateral adjustment and
making such an adjustment would result in double taxation or double non-taxation under this
Decision;
(b) a loss from a sale or other transfer of an asset between two Constituent Entities located in the
UAE that is not recorded consistent with the Arm’s Length Principle shall be recomputed based
on the Arm’s Length Principle if that loss is included in the computation of Pillar Two Income or
Loss;
(c) rules for allocating income or loss between a Main Entity and its Permanent Establishments are
found in Article 3.4.
3.2.4 Qualified Refundable Tax Credits and Marketable Transferable Tax Credit shall be treated as income
in the computation of Pillar Two Income or Loss of a Constituent Entity. Non-Qualified Refundable
Tax Credits and Non-Marketable Transferable Tax Credits shall not be treated as income in the
computation of Pillar Two Income or Loss of a Constituent Entity.
3.2.5 With respect to assets and liabilities that are subject to fair value or impairment accounting in the
Consolidated Financial Statements, a Filing Constituent Entity may elect to determine gains and
losses using the realisation principle for purposes of computing Pillar Two Income. The election is a
Five-Year Election and applies to all Constituent Entities located in the UAE to which the election
applies. The election applies to all assets and liabilities of such Constituent Entities, unless the Filing
Constituent Entity chooses to limit the election to tangible assets of such Constituent Entities or to
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Constituent Entities that are Investment Entities. Under this election:
(a) all gains or losses attributable to fair value or impairment accounting with respect to an asset
or liability shall be excluded from the computation of Pillar Two Income or Loss;
(b) the carrying value of an asset or liability for purposes of determining gain or loss shall be its
carrying value adjusted for accumulated depreciation at the later of:
(i) the first day of the election year, or
(ii) the date the asset was acquired or liability was incurred; and
(c) if the election is revoked, the Pillar Two Income or Loss of the Constituent Entities is adjusted by
the difference at the beginning of the revocation year between the fair value of the asset or liability
and the carrying value of the asset or liability determined pursuant to the election and adjusted
for accumulated depreciation.
3.2.6 Where there is Aggregate Asset Gain in the UAE in a Fiscal Year, the Filing Constituent Entity may
make, under this Article 3.2.6, an Annual Election for the UAE to adjust Pillar Two Income or Loss with
respect to each previous Fiscal Year in the Look-back Period in the manner described in paragraphs
(b) and (c) and to spread any remaining Adjusted Asset Gain over the Look-back Period in the manner
described in paragraph (d). The Effective Tax Rate and Top-up Tax, if any, for any previous Fiscal
Year must be re-calculated under Article 5.4.1. When an election is made under this Article:
(a) Covered Taxes with respect to any Net Asset Gain or Net Asset Loss in the Election Year shall
be excluded from the computation of Adjusted Covered Taxes.
(b) The Aggregate Asset Gain in the Election Year shall be carried-back to the earliest Loss Year
and set-off ratably against any Net Asset Loss of any Constituent Entity located in the UAE.
(c) If, for any Loss Year, the Adjusted Asset Gain exceeds the total amount of Net Asset Loss of all
Constituent Entities located in the UAE, the Adjusted Asset Gain shall be carried forward to the
following Loss Year (if any) and applied ratably against any Net Asset Loss of any Constituent
Entity located in the UAE.
(d) Any Adjusted Asset Gain that remains after the application of paragraphs (b) and (c) shall be
allocated evenly to each Fiscal Year in the Look-back Period. The Allocated Asset Gain for the
relevant year shall be included in the computation of Pillar Two Income or Loss for a Constituent
Entity located in the UAE in that year in accordance with the following formula:
𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴 𝐺𝐺𝐴𝐴𝐺𝐺𝐺𝐺 𝑓𝑓𝐴𝐴𝑓𝑓
𝑓𝑓𝐴𝐴𝐴𝐴𝐴𝐴𝑟𝑟𝐴𝐴𝐺𝐺𝐴𝐴 𝑦𝑦𝐴𝐴𝐴𝐴𝑓𝑓 x
𝑇𝑇ℎ𝐴𝐴 𝐴𝐴𝑠𝑠𝐴𝐴𝐴𝐴𝐺𝐺𝑓𝑓𝐺𝐺𝐴𝐴𝐴𝐴 𝐶𝐶𝐴𝐴𝐺𝐺𝐴𝐴𝐴𝐴𝐺𝐺𝐴𝐴𝐶𝐶𝐴𝐴𝐺𝐺𝐴𝐴 𝐸𝐸𝐺𝐺𝐴𝐴𝐺𝐺𝐴𝐴𝑦𝑦’𝐴𝐴 𝑁𝑁𝐴𝐴𝐴𝐴 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴 𝐺𝐺𝐴𝐴𝐺𝐺𝐺𝐺 𝐺𝐺𝐺𝐺 𝐴𝐴ℎ𝐴𝐴
𝐸𝐸𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐺𝐺𝐴𝐴𝐺𝐺 𝑌𝑌𝐴𝐴𝐴𝐴𝑓𝑓
𝑇𝑇ℎ𝐴𝐴 𝑁𝑁𝐴𝐴𝐴𝐴 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴 𝐺𝐺𝐴𝐴𝐺𝐺𝐺𝐺 𝐴𝐴𝑓𝑓 𝐴𝐴𝐴𝐴𝐴𝐴 𝐴𝐴𝑠𝑠𝐴𝐴𝐴𝐴𝐺𝐺𝑓𝑓𝐺𝐺𝐴𝐴𝐴𝐴 𝐶𝐶𝐴𝐴𝐺𝐺𝐴𝐴𝐴𝐴𝐺𝐺𝐴𝐴𝐶𝐶𝐴𝐴𝐺𝐺𝐴𝐴 𝐸𝐸𝐺𝐺𝐴𝐴𝐺𝐺𝐴𝐴𝐺𝐺𝐴𝐴𝐴𝐴 𝐺𝐺𝐺𝐺 𝐴𝐴ℎ𝐴𝐴
𝐸𝐸𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐺𝐺𝐴𝐴𝐺𝐺 𝑌𝑌𝐴𝐴𝐴𝐴𝑓𝑓
For the purposes of the above formula, a specified Constituent Entity is a Constituent Entity that
has Net Asset Gain in the Election Year and was located in the UAE in the relevant year. If there
is no specified Constituent Entity for a relevant year the Adjusted Asset Gain allocated to that year
will be allocated equally to each Constituent Entity in the UAE in that year.
3.2.7 The computation of a Low-Tax Entity’s Pillar Two Income or Loss shall exclude any expense
attributable to an Intragroup Financing Arrangement that can reasonably be anticipated, over the
expected duration of the arrangement to:
(a) increase the amount of expenses taken into account in calculating the Pillar Two Income or
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Loss of the Low-Tax Entity;
(b) without resulting in a commensurate increase in the taxable income of the High-Tax
Counterparty. An amount received or receivable should not be treated as increasing the taxable
income of a High-Tax Counterparty if it is eligible for an exclusion, exemption, deduction, credit or
other tax benefit under local law and the amount of that benefit is calculated by reference to the
amount received or receivable.
3.2.8 An Ultimate Parent Entity may elect to apply its consolidated accounting treatment to eliminate
income, expense, gains, and losses from transactions between Constituent Entities that are located,
and included in a tax consolidation group, in the UAE for purposes of computing each such
Constituent Entity’s Net Pillar Two Income or Loss. The election under this Article is a Five-Year
Election. Upon making or revoking such election, appropriate adjustments shall be made for the
purposes of this Decision such that there shall not be duplications or omissions of items of Pillar Two
Income or Loss as a result of having made or revoked the election.
3.2.9 An insurance company shall exclude from the computation of Pillar Two Income or Loss amounts
charged to policyholders for Taxes paid by the insurance company in respect of returns to the policy
holders. An insurance company shall include in the computation of Pillar Two Income or Loss any
returns to policyholders that are not reflected in Financial Accounting Net Income or Loss to the extent
the corresponding increase or decrease in liability to the policyholders is reflected in its Financial
Accounting Net Income or Loss.
3.2.10 Amounts recognised as a decrease to the equity of a Constituent Entity attributable to distributions
paid or payable in respect of Additional Tier One Capital and Restricted Tier One Capital issued by
the Constituent Entity shall be treated as an expense in the computation of its Pillar Two Income or
Loss. Amounts recognised as an increase to the equity of a Constituent Entity attributable to
distributions received or receivable in respect of Additional Tier One Capital held by the Constituent
Entity shall be included in the computation of its Pillar Two Income or Loss.
3.2.11 A Constituent Entity’s Financial Accounting Net Income or Loss must be adjusted as necessary to
reflect the requirements of the relevant provisions of Articles 6 and 7.
3.2.12 At the election of the Filing Constituent Entity, a Constituent Entity may exclude income attributable
to a Qualified Debt Release from the computation of a Constituent Entity’s Pillar Two Income or Loss.
3.2.13 Notwithstanding Article 3.2.1(b), a Filing ConstituentEntity may make a Five-Year Election for each
Constituent Entity to include in the computation of Pillar Two Income all dividends with respect to
Portfolio Shareholdings, regardless of whether these are Short-term Portfolio Shareholdings.
3.2.14 Notwithstanding Article 3.2.1(c), a Filing Constituent Entity may make a Five-Year Election to treat
foreign exchange gains or losses as an Excluded Equity Gain or Loss, to the extent that:
(a) such foreign exchange gains or losses are attributable to hedging instruments that hedge the
currency exchange rate risk in Ownership Interests other than Portfolio Shareholdings;
(b) such gain or loss is recognised in Other Comprehensive Income at the level of the Consolidated
Financial Statements; and
(c) the hedging instrument is considered an effective hedge under the Authorized Financial
Accounting Standard used in the preparation of the Consolidated Financial Statements.
