Article 3 - Computation of Pillar Two Income or Loss

Article 3.1. Financial Accounts for the Determination of the Pillar Two Income or Loss

3.1.1 The Pillar Two Income or Loss of each Constituent Entity is the Financial Accounting Net Income or Loss determined for the Constituent Entity for the Fiscal Year adjusted for the items described in Article 3.2 to Article 3.5.

3.1.2 The Financial Accounting Net Income or Loss of a Constituent Entity for the Fiscal Year shall be determined in accordance with its standalone financial statements prepared in accordance with IFRS where:

(a) all of the Constituent Entities located in the UAE are required to prepare standalone financial statements in accordance with Federal Decree-Law No. 47 of 2022 or the applicable laws of the UAE;

(b) all of the standalone financial statements of the Constituent Entities located in the UAE are prepared in accordance with IFRS; and

(c) the financial year of all of the separate financial statements of the Constituent Entities located in the UAE is the same as the Fiscal Year of the Consolidated Financial Statements of the Ultimate Parent Entity.

3.1.3 Where the conditions of Article 3.1.2 are not met, the Financial Accounting Net Income or Loss is the net income or loss determined for a Constituent Entity in preparing Consolidated Financial Statements of the Ultimate Parent Entity and shall not include consolidation adjustments attributable to:

(a) intragroup transactions unless Article 3.2.8 applies;

(b) purchase price allocation where a Group Entity acquires a Controlling Interest in an Entity as a result of a business combination, unless the following conditions are satisfied:

i. the acquisition date is prior to 1 December 2021; and

ii. the MNE Group does not have sufficient records to determine its Financial Accounting Net Income or Loss based on the unadjusted carrying values of the acquired assets and liabilities. The Financial Accounting Net Income or Loss shall include other consolidation adjustments not referred to in paragraphs (a) and (b) that are reflected in the Financial Accounting Net Income or Loss to the extent they can reliably and consistently be traced to the relevant Entity.

3.1.4 If it is not reasonably practicable to determine the Financial Accounting Net Income or Loss for a Constituent Entity based on the accounting standard used in the preparation of Consolidated Financial Statements of the Ultimate Parent Entity in accordance with Article 3.1.3, the Financial Accounting Net Income or Loss for the Constituent Entity for the Fiscal Year may be determined using another Acceptable Financial Accounting Standard or an Authorised Financial Accounting Standard (adjusted to prevent Material Competitive Distortions) if:

(a) the financial accounts of the Constituent Entity are maintained based on that accounting standard;

(b) the information contained in the financial accounts is reliable; and

(c) permanent differences in excess of EUR 1 million that arise from the application of a particular principle or standard to items of income or expense or transactions that differs from the financial standard used in the preparation of the Consolidated Financial Statements of the Ultimate Parent Entity are conformed to the treatment required under the accounting standard used in the Consolidated Financial Statements of the Ultimate Parent Entity.

3.1.5Articles 3.1.1 to 3.1.4 shall apply separately to a:

(a) Joint Venture and JV Subsidiaries of a Domestic JV Group; and

(b) Reverse Hybrid Entity created in accordance with the laws of the UAE.

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;

(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;

(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;

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 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:

Allocated Asset Gain for relevant year × The specified Constituent Entity’s Net Asset Gain in the Election YearThe Net Asset Gain of all specified Constituent Entities of the Election Year

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 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.

Article 3.3. International Shipping Income exclusion

3.3.1 For an MNE Group that has International Shipping Income, each Constituent Entity’s International Shipping Income and Qualified Ancillary International Shipping Income shall be excluded from the computation of its Pillar Two Income or Loss under Article 3.2 for the Jurisdiction in which it is located. Where the computation of a Constituent Entity’s International Shipping Income or Qualified Ancillary International Shipping Income results in a loss, the loss shall be excluded from the computation of its Pillar Two Income or Loss.

3.3.2 International Shipping Income means the net income obtained by a Constituent Entity from:

(a) the transportation of passengers or cargo by ships that it operates in international traffic, whether the ship is owned, leased or otherwise at the disposal of the Constituent Entity;

(b) the transportation of passengers or cargo by ships operated in international traffic under slot-chartering arrangements;

(c) leasing a ship, to be used for the transportation of passengers or cargo in international traffic, on charter fully equipped, crewed and supplied;

(d) leasing a ship on a bare boat charter basis, for the use of transportation of passengers or cargo in international traffic, to another Constituent Entity;

(e) the participation in a pool, a joint business or an international operating agency for the transportation of passengers or cargo by ships in international traffic; and

(f) the sale of a ship used for the transportation of passengers or cargo in international traffic provided that the ship has been held for use by the Constituent Entity for a minimum of one year. International Shipping Income shall not include net income obtained from the transportation of passengers or cargo by ships via inland waterways within the same Jurisdiction.

3.3.3 Qualified Ancillary International Shipping Income means net income obtained by a Constituent Entity from the following activities that are performed primarily in connection with the transportation of passengers or cargo by ships in international traffic:

(a) leasing a ship on a bare boat charter basis to another shipping enterprise that is not a Constituent Entity, provided that the charter does not exceed three years;

(b) sale of tickets issued by other shipping enterprises for the domestic leg of an international voyage;

(d) provision of services to other shipping enterprises by engineers, maintenance staff, cargo handlers, catering staff, and customer services personnel; and

(e) investment income where the investment that generates the income is made as an integral part of the carrying on the business of operating the ships in international traffic.

3.3.4 The aggregated Qualified Ancillary International Shipping Income of all Constituent Entities located in a Jurisdiction shall not exceed 50% of those Constituent Entities’ International Shipping Income.

3.3.5 The costs incurred by a Constituent Entity that are directly attributable to its international shipping activities listed in Article 3.3.2 and the costs directly attributable to its qualified ancillary activities listed in Article 3.3.3 shall be deducted from the Constituent Entity’s revenues from such activities to compute its International Shipping Income and Qualified Ancillary International Shipping Income. Other costs incurred by a Constituent Entity that are indirectly attributable to a Constituent Entity’s international shipping activities and qualified ancillary activities shall be allocated on the basis of the Constituent Entity’s revenues from such activities in proportion to its total revenues. All direct and indirect costs attributed to a Constituent Entity’s International Shipping Income and Qualified Ancillary International Shipping Income shall be excluded from the computation of its Pillar Two Income or Loss.

3.3.6 In order for a Constituent Entity’s International Shipping Income and Qualified Ancillary International Shipping Income to qualify for the exclusion from its Pillar Two Income or Loss under this Article, the Constituent Entity must demonstrate that the strategic or commercial management of all ships concerned is effectively carried on from within the Jurisdiction where the Constituent Entity is located.

Article 3.4. Allocation of Income or Loss between a Main Entity and a Permanent Establishment

3.4.1 The Financial Accounting Net Income or Loss of a Constituent Entity that is a Permanent Establishment in accordance with paragraphs (a), (b) and (c) of the definition in Article 18.1 is the net income or loss reflected in the separate financial accounts of the Permanent Establishment. If the Permanent Establishment does not have separate financial accounts, then the Financial Accounting Net Income or Loss is the amount that would have been reflected in its separate financial accounts if prepared on a standalone basis and in accordance with the accounting standard used in the preparation of the Consolidated Financial Accounts of the Ultimate Parent Entity.

3.4.2 The Financial Accounting Net Income or Loss of a Permanent Establishment referred to in Article 3.4.1 shall be adjusted, if necessary:

(a) in the case of a Permanent Establishment as defined by paragraphs (a) and

(b) of the definition in Article 18.1, to reflect only the amounts and items of income and expense that are attributable to the Permanent Establishment in accordance with the applicable Tax Treaty or domestic law of the Jurisdiction where it is located regardless of the amount of income subject to tax and the amount of deductible expenses in that Jurisdiction; (b) in the case of a Permanent Establishment as defined by paragraph (c) of the definition in Article 18.1, to reflect only the amounts and items of income and expense that would have been attributed to it in accordance with Article 7 of the OECD Model Tax Convention.

3.4.3 In case of a Constituent Entity that is a Permanent Establishment in accordance with paragraph (d) of the definition in Article 18.1, its income used for computing Financial Accounting Net Income or Loss is the income being exempted in the Jurisdiction where the Main Entity is located and attributable to the operations conducted outside that Jurisdiction. The expenses used for computing Financial Accounting Net Income or Loss are those that are not deducted for taxable purposes in the Jurisdiction where the Main Entity is located and that are attributable to such operations.

3.4.4 The Financial Accounting Net Income or Loss of a Permanent Establishment is not taken into account in determining the Pillar Two Income or Loss of the Main Entity, except as provided in Article 3.4.5.

3.4.5 A Pillar Two Loss of a Permanent Establishment shall be treated as an expense of the Main Entity (and not of the Permanent Establishment) for purposes of computing its Pillar Two Income or Loss to the extent that the loss of the Permanent Establishment is treated as an expense in the computation of the domestic taxable income of such Main Entity and is not set off against an item of income that is subject to tax under the laws of both the Jurisdiction of the Main Entity and the Jurisdiction of the Permanent Establishment. Pillar Two Income subsequently arising in the Permanent Establishment shall be treated as Pillar Two Income of the Main Entity (and not the Permanent Establishment) up to the amount of the Pillar Two Loss that previously was treated as an expense for purposes of computing the Pillar Two Income or Loss of the Main Entity.

Article 3.5. Allocation of Income or Loss from a Flow-through Entity

3.5.1 The Financial Accounting Net Income or Loss of a Constituent Entity that is a Flow-through Entity is allocated as follows:

(a) in the case of a Permanent Establishment through which the business of the Entity is wholly or partly carried out, the Financial Accounting Net Income or Loss of the Entity is allocated to that Permanent Establishment in accordance with Article 3.4;

(b) in the case of a Tax Transparent Entity that is not the Ultimate Parent Entity, any Financial Accounting Net Income or Loss remaining after application of paragraph (a) is allocated to its Constituent Entity-owners in accordance with their Ownership Interests; and

(c) in the case of a Tax Transparent Entity that is the Ultimate Parent Entity or a Reverse Hybrid Entity, any Financial Accounting Net Income or Loss remaining after application of paragraph (a) is allocated to it.

3.5.2 The rules of Article 3.5.1 shall be applied separately with respect to each Ownership Interest in the Flow-through Entity.

3.5.3 Prior to the application of Article 3.5.1, the Financial Accounting Net Income or Loss of a Flow-through Entity shall be reduced by the amount allocable to its owners that are not Group Entities and that hold their Ownership Interest in the Flow-through Entity directly or through a Tax Transparent Structure.

3.5.4Article 3.5.3 does not apply to:

(a) an Ultimate Parent Entity that is a Flow-through Entity; or

(b) any Flow-through Entity owned by such an Ultimate Parent Entity (directly or through a Tax Transparent Structure). The treatment of these Entities is addressed in Article 7.1.

3.5.5 The Financial Accounting Net Income or Loss of a Flow-through Entity is reduced by the amount that is allocated to another Constituent Entity.

3.5.6 The direct or indirect owner of an Ownership Interest in a Tax Transparent Entity shall treat any tax credits that flows-through a Tax Transparent Entity as tax credits of the owner. The allocation of the tax credits shall be allocated in the same proportion as the Financial Accounting Income or Loss allocated to the owners in accordance with Articles 3.5.1 to 3.5.5. Where the tax credits are allocated differently to the owners in accordance with the domestic tax law of the Jurisdictions where the owners are located and the Tax Transparent Entity is created, then the allocation of the tax credit under this provision shall follow such allocation made under the domestic laws.

3.5.7 The provisions of Article 3.5.6 shall not apply where a Filing Constituent Entity makes an Equity Investment Inclusion Election or in the case of a Qualified Flow-through Tax Benefit. In those cases, Article 7.5 shall apply.