Transitional CbCR safe harbour

Why safe harbours exist

The full GloBE computation is detailed and data-intensive. For each jurisdiction, groups must calculate GloBE income (with its many adjustments), determine adjusted covered taxes (with deferred tax recasting), compute the substance-based income exclusion, and produce documentation that supports every figure. For a group operating in 50 or more jurisdictions, this is a formidable undertaking.

The OECD recognised that in many jurisdictions, the result of this full computation would be predictable: groups operating in countries with headline tax rates well above 15% and no significant tax incentives are very unlikely to have an ETR below the minimum. Requiring a full computation in these jurisdictions imposes cost without meaningful compliance benefit.

The transitional CbCR safe harbour addresses this by allowing groups to use data from their existing Country-by-Country Reports, which in-scope groups are already required to file, to demonstrate that a jurisdiction is unlikely to be low-taxed. If a jurisdiction passes any one of three tests, the top-up tax for that jurisdiction is deemed to be zero, and no full GloBE computation is required.

The transition period

The transitional CbCR safe harbour is available for fiscal years beginning on or before 31 December 2027 and ending no later than 30 June 2029. For most groups, this means it is available for the first four fiscal years to which the GloBE rules apply. After this period, the safe harbour expires and full GloBE computations will be required for all jurisdictions.

The transitional nature of the safe harbour is deliberate: it gives groups time to build the systems and processes needed for full compliance, while providing immediate relief for jurisdictions that are clearly not at risk of being low-taxed.

Data source: Qualified CbCR

The safe harbour tests rely on data from a "Qualified CbCR," a Country-by-Country Report that meets certain quality requirements. Specifically:

• The CbCR must be based on Qualified Financial Statements, which are either the consolidated financial statements used for group reporting (consistent sources) or separate entity financial statements prepared under a qualifying accounting standard.
• The financial data in the CbCR must be prepared on a consistent basis, either consistently using data from the consolidation package or consistently using data from separate statutory accounts across all entities in the jurisdiction.
• Revenue, profit (loss) before income tax, income tax paid, income tax accrued, and other CbCR data points must be accurately completed.

Most large MNE groups already prepare CbCR reports to a high standard, so the data quality requirement is typically not a significant hurdle. However, groups should review their CbCR preparation process to confirm consistency, particularly where entities use different local accounting standards.

The three tests

A jurisdiction qualifies for the transitional safe harbour if it passes any one of the following three tests. The tests are applied independently; passing any single test is sufficient.

Test 1: De minimis test

This test is designed for jurisdictions where the group has trivial operations. A jurisdiction passes the transitional CbCR safe harbour de minimis test if, based on the current-year data from the Qualified CbC Report:

• Total CbCR revenue in the jurisdiction is less than EUR 10 million, and
• Profit (loss) before income tax in the jurisdiction is less than EUR 1 million (or is a loss)

If both conditions are met, the jurisdiction is treated as having zero top-up tax. This test is particularly useful for jurisdictions where the group has a small representative office, a dormant entity, or a minor operational presence.

Test 2: Simplified ETR test

This test is a simplified version of the full GloBE ETR computation, using CbCR data instead of GloBE-adjusted figures. A jurisdiction passes the simplified ETR test if:

Simplified ETR = Total CbCR Income Tax Accrued / Total CbCR Profit Before Tax >= Transition Rate

The transition rate is set at levels that are slightly below 15% to provide a margin of safety, recognising that the simplified CbCR-based ETR is not identical to the full GloBE ETR. The transition rates are:

The transition rates increase slightly over time to reflect the fact that groups should be building towards full compliance and the simplified test should become progressively tighter.

For the simplified ETR test, the income tax accrued figure from the CbCR is used as a proxy for covered taxes. Where a jurisdiction has a CbCR loss (profit before tax is zero or negative), the simplified ETR test cannot be applied (you cannot divide by zero or a negative number), but the de minimis test or the routine profits test may still apply.

Test 3: Routine profits test

This test is based on the concept that if a jurisdiction's profit is less than or equal to the substance-based income exclusion (SBIE) that would apply under a full GloBE computation, there can be no excess profit and therefore no top-up tax. A jurisdiction passes the routine profits test if:

CbCR Profit Before Tax <= Substance-Based Income Exclusion

The SBIE for the safe harbour is calculated using the same formula as the full GloBE SBIE (a percentage of eligible payroll costs plus a percentage of the net book value of eligible tangible assets in the jurisdiction) but using data sourced from the CbCR and financial statements rather than GloBE-adjusted figures.

The carve-out percentages for the transitional safe harbour are the same transitional rates that apply under the full GloBE SBIE (see Chapter 8 for the full SBIE rate schedule). During the early years, these percentages are higher than the long-term rates, making the test easier to pass during the transition period.

Applying the safe harbour in practice

Groups should approach the safe harbour testing process systematically:

1. Prepare or confirm CbCR data quality: Ensure that the CbCR for the relevant fiscal year is based on Qualified Financial Statements and prepared on a consistent basis across all entities in each jurisdiction.
2. Run all three tests for every jurisdiction: A jurisdiction only needs to pass one test, so it is efficient to run all three and identify which jurisdictions qualify under any of them.
3. Document the results: Even though the safe harbour simplifies the computation, groups should maintain documentation showing which test was passed and the underlying data, in case of a tax authority enquiry.
4. Focus resources on remaining jurisdictions: For jurisdictions that fail all three safe harbour tests, a full GloBE computation will be required. These are the jurisdictions where data collection and calculation effort should be concentrated.

Jurisdictions likely to pass vs. fail

In general terms:

What happens when the safe harbour expires?

When the transitional CbCR safe harbour expires (for fiscal years beginning after 31 December 2027), all jurisdictions will require a full GloBE computation. The OECD has indicated that it may develop permanent safe harbours, potentially based on a simplified calculation methodology rather than CbCR data, but as of early 2026, permanent safe harbours have not been finalised for general application.

A separate QDMTT safe harbour does exist on a permanent basis. Where a jurisdiction has implemented a Qualified Domestic Minimum Top-up Tax, the GloBE rules allow groups to use the QDMTT computation as the basis for the GloBE ETR in that jurisdiction, without running a separate parallel calculation. This reduces duplication but does not eliminate the need for a detailed computation; it simply means the group can rely on the domestic calculation rather than performing an independent GloBE calculation.

Groups should plan for the expiry of the transitional safe harbour by building towards full GloBE computation capability across all jurisdictions during the transition period, rather than deferring the effort until the safe harbour is no longer available.