Article 57 - Exclusion for Initial Phase of International Activity

For the purposes of Paragraph A of Article 15 of the Law, Stateless Constituent Entities are not taken into consideration when determining the number of jurisdictions in which the Multinational Enterprise Group operates.

For the purposes of Paragraph A of Article 15 of the Law, the following shall be considered:

1. The Net Book Value of Tangible Assets means the average of the beginning and end values of Tangible Assets after taking into account accumulated depreciation, depletion, and impairment, as recorded in the financial statements.

2. Subject to Clause 3 of this Paragraph, the sum of the Net Book Value of Tangible Assets in a jurisdiction is the sum of the Net Book Values of Tangible Assets of all Constituent Entities of the Multinational Enterprise Group that are located in that jurisdiction.

3. Tangible Assets are not taken into account where they are held by Joint Ventures and Joint Venture Subsidiaries, or Investment Entities and Insurance Investment Entities that are not Excluded Entities.

4. Tangible Assets do not include cash or cash equivalents, intangibles, or financial assets.

5. With regard to Permanent Establishments, Tangible Assets should be allocated to the jurisdiction in which the Permanent Establishment is located provided those Tangible Assets are included in the separate financial accounts of that Permanent Establishment as determined under Article 10 of these Regulations. The Tangible Assets allocated to the jurisdiction of a Permanent Establishment shall not be taken into account as Tangible Assets of the jurisdiction of the Main Entity.

The period of five years referred to in Paragraph C of Article 15 of the Law, shall start from the beginning of the Fiscal Year in which the Multinational Enterprise Group originally came within the scope of the Law.

The five-year period shall not be suspended or interrupted if a Multinational Enterprise Group comes out of scope of the Law or for any other reason.

The condition in Clause 3 of Paragraph A of Article 15 of the Law is not satisfied if the Ownership Interests in the Constituent Entities located in the Kingdom are held indirectly by a parent entity that applies the Income Inclusion Rule (IIR).

Where the exclusion in Article 15 of the Law applies for a Fiscal Year, a Filing Constituent Entity is not required to compute the Effective Tax Rate or the Tax that would have been due had the exclusion not been available.

For the purposes of this Article, references to tangible assets means the tangible assets of all Constituent Entities resident for tax purposes in the relevant jurisdiction.