Article 5 - Computation of Effective Tax Rate and Top-up Tax

Article 5.1. Determination of Effective Tax Rate

5.1.1 The Effective Tax Rate of the MNE Group with Net Pillar Two Income shall be calculated for each Fiscal Year. The Effective Tax Rate of the MNE Group is equal to the sum of the Adjusted Covered Taxes of each Constituent Entity located in the UAE divided by the Net Pillar Two Income of the UAE for the Fiscal Year. For purposes of Article 5, each Stateless Constituent Entity subject to the provisions of this Decision shall be treated as if it was a single Constituent Entity located in the UAE.

5.1.2 The Net Pillar Two Income of the UAE for a Fiscal Year is the positive amount, if any, computed in accordance with the following formula:

5.1.3 Adjusted Covered Taxes and Pillar Two Income or Loss of Constituent Entities that are Investment Entities are excluded from the determination of the Effective Tax Rate in Article 5.1.1 and the determination of Net Pillar Two Income in Article 5.1.2.

Article 5.2. Top-up Tax

5.2.1 The Top-up Tax Percentage for a Fiscal Year shall be the positive percentage point difference, if any, computed in accordance with the following formula:

5.2.2 The Excess Profit for the Fiscal Year is the positive amount, if any, computed in accordance with the following formula:

5.2.3 The Top-up Tax for a Fiscal Year is equal to the positive amount, if any, computed in accordance with the following formula:

5.2.4 Unless a Domestic Designated Filing Entity has been appointed to pay the Top-up Tax or except where Article 5.4.2 applies, the Top-up Tax of a Constituent Entity shall be determined for each Constituent Entity located in the UAE that has Pillar Two Income determined in accordance with Article 3 for the Fiscal Year included in the computation of Net Pillar Two Income of the UAE in accordance with the following formula:

5.2.5 Where a Domestic Designated Filing Entity has not been appointed to pay the Top-up Tax, the Top-up Tax is attributable to a recalculation under Article 5.4.1 and there is no Net Pillar Two Income in the UAE for the current Fiscal Year, the Top-up Tax shall be allocated using the formula in Article 5.2.4 based on the Pillar Two Income of the Constituent Entities in the Fiscal Years for which the recalculations under Article 5.4.1 were performed.

5.2.6 Where the Effective Tax Rate computed in accordance with Article 5.1.1 is less than zero and the Top-up Tax Percentage computed in accordance with Article 5.2.1 is above the Minimum Rate, the following provisions shall apply:

(a) the Excess Negative Tax Expense shall be excluded from its aggregate Adjusted Covered Taxes and an excess negative tax expense carry-forward shall be established;

(b) the Excess Negative Tax Expense for a Fiscal Year is equal to the negative Adjusted Covered Taxes for that Fiscal Year;

(c) the excess negative tax expense carry-forward must be utilised in all relevant subsequent computations of the Jurisdictional Effective Tax Rate;

(d) in each subsequent Fiscal Year in which there is positive Pillar Two Income and Adjusted Covered Taxes in the UAE, the aggregate Adjusted Covered Taxes shall be reduced (but not below to zero) by the remaining balance of the excess negative tax expense carry-forward and such carry-forward shall be reduced by the same amount;

(e) the excess negative tax expense attributable to an amount of a loss that is carried back and applied against income for prior taxable years for domestic tax purposes must be taken into account in the current Fiscal Year under Article 5.2.1 and cannot be included in the excess negative tax expense carry-forward;

(f) the excess negative tax expense carry-forward shall remain an attribute of a transferor group where the MNE Group disposes of one or more Constituent Entities in the UAE;

(g) where the MNE Group disposes of all Constituent Entities in the UAE and re- acquires or establishes Constituent Entities in the UAE in a subsequent Fiscal Year, the balance of the excess negative tax expense carry-forward shall be taken into account in determining the Adjusted Covered Taxes for the UAE beginning with such Fiscal Year;

(h) the MNE Group shall maintain a record of the outstanding balance of the excess negative tax expense carry-forward.

Article 5.3. Substance-based Income Exclusion

5.3.1 The Net Pillar Two Income for the UAE shall be reduced by the Substance- based Income Exclusion of the UAE to determine the Excess Profit for purposes of computing the Top-up Tax under Article 5.2. A Filing Constituent Entity of an MNE Group may make an Annual Election not to apply the Substance-based Income Exclusion by not computing the exclusion or claiming it in the computation of Top-up Tax in the Top-up Tax Return filed for the Fiscal Year.

5.3.2 The Substance-based Income Exclusion amount is the sum of the payroll carve-out and the tangible asset carve-out for each Constituent Entity, except for Constituent Entities that are Investment Entities, located in the UAE.

5.3.3 The payroll carve-out for a Constituent Entity located in the UAE is equal to 5% of its Eligible Payroll Costs of Eligible Employees that perform activities for the MNE Group in the UAE, except Eligible Payroll costs that are:

(a) capitalised and included in the carrying value of Eligible Tangible Assets;

(b) attributable to a Constituent Entity’s International Shipping Income and Qualified Ancillary International Shipping Income under Article 3.3.5 that is excluded from the computation of Pillar Two Income or Loss for the Fiscal Year.

5.3.4 The tangible asset carve-out for a Constituent Entity located in the UAE is equal to 5% of the carrying value of Eligible Tangible Assets located in the UAE. Eligible Tangible Assets means:

(a) property, plant, and equipment located in the UAE;

(b) natural resources located in the UAE;

(c) a lessee’s right of use of tangible assets located in the UAE; and

(d) a licence or similar arrangement from the government for the use of immovable property or exploitation of natural resources that entails significant investment in tangible assets. For this purpose, the tangible asset carve-out computation shall not include the carrying value of property (including land or buildings) that is held for sale, lease or investment. The tangible asset carve-out computation shall not include the carrying value of tangible assets used in the generation of a Constituent Entity’s International Shipping Income and Qualified Ancillary International Shipping Income (i.e. ships and other maritime equipment and infrastructure). The carrying value of tangible assets attributable to a Constituent Entity’s excess income over the cap for Qualified Ancillary International Shipping Income under Article 3.3.4 shall be included in the tangible asset carve-out computation.

5.3.5 The computation of carrying value of Eligible Tangible Assets for purposes of Article 5.3.4 shall be based on the average of the carrying value (net of accumulated depreciation, amortisation, depletion, or impairment losses and including any amount attributable to capitalisation of payroll expense) at the beginning and ending of the Reporting Fiscal Year as recorded for the purposes of preparing the Consolidated Financial Statements of the Ultimate Parent Entity.

5.3.6 For purposes of Articles 5.3.3 and 5.3.4, the Eligible Payroll Costs and Eligible Tangible Assets of a Constituent Entity that is a Permanent Establishment are those included in its separate financial accounts as determined by Article 3.4.1 and adjusted in accordance with Article 3.4.2, provided that the Eligible Employees and Eligible Tangible Assets are located in the Jurisdiction where the Permanent Establishment is located. The Eligible Payroll Costs and Eligible Tangible Assets of a Permanent Establishment are not taken into account for the Eligible Payroll Costs and Eligible Tangible Assets of the Main Entity. The Eligible Payroll Costs and Eligible Tangible Assets of a Permanent Establishment whose income has been wholly or partly excluded in accordance with Articles 3.5.3 and 7.1.4 are excluded from the Substance- based Income Exclusion computations of the MNE Group in the same proportion.

5.3.7 For purposes of Articles 5.3.3 and 5.3.4, Eligible Payroll Costs and Eligible Tangible Assets of a Flow-through Entity that are not allocated under Article 5.3.6 are allocated as follows:

(a) if the Financial Accounting Net Income or Loss of the Flow-through Entity has been allocated to the Constituent Entity-owner under Article 3.5.1(b), then the Entity’s Eligible Payroll Costs and Eligible Tangible Assets are allocated in the same proportion to the Constituent Entity- owner provided it is located in the Jurisdiction where the Eligible Employees and Eligible Tangible Assets are located;

(b) if the Flow-through Entity is the Ultimate Parent Entity, then Eligible Payroll Costs and Eligible Tangible Assets located in the Jurisdiction where the Ultimate Parent Entity is located are allocated to it and reduced in proportion to the income that is excluded under Article 7.1.1; and

(c) all other Eligible Payroll Costs and Eligible Tangible Assets of the Flow- through Entity are excluded from the Substance-based Income Exclusion computations of the MNE Group.

5.3.8 A Filing Constituent Entity may claim only a subset of the total Eligible Payroll Costs and Eligible Tangible Assets when calculating the Substance-based Income Exclusion amount under the provisions of this Decision.

5.3.9 Eligible Payroll Costs and Eligible Tangible Assets attributable to income excluded under Article 7.2.1 shall be excluded from the computation of the Substance-based Income Exclusion. The amount excluded under this provision is equal to the total Eligible Payroll Costs and total carrying value of the Eligible Tangible Assets multiplied by the ratio of the Pillar Two Income excluded under Article 7.2.1 to the total Pillar Two Income determined for the Ultimate Parent Entity before the exclusion under Article 7.2.1.

5.3.10 For purposes of Article 5.3.3, a Constituent Entity employer located in the UAE will be entitled to 100% of the Eligible Payroll Costs of an Eligible Employee where such employee undertakes more than 50% of its activities for the Constituent Entity employer during the relevant Fiscal Year within the UAE. Where an Eligible Employee undertakes 50% or less of its activities for its Constituent Entity employer during the relevant Fiscal Year within the UAE, the Constituent Entity employer will be entitled to the proportional Eligible Payroll Costs in accordance with the following formula:

5.3.11 Where Article 5.3.4 applies with respect to an Eligible Tangible Asset of a Constituent Entity owner or lessee located in the UAE, such Constituent Entity will be entitled to 100% of the carrying value of an Eligible Tangible Asset where more than 50% of the time, during the relevant Fiscal Year, the asset is located within the UAE. Where an Eligible Tangible Asset is located within the UAE 50% or less of the time during the relevant Fiscal Year, the Constituent Entity owner or lessee will be entitled to the proportional carrying value of the Eligible Tangible Asset in accordance with the following formula:

5.3.12 For purposes of Articles 5.3.4 and 5.3.5, the following provisions apply in the case of an operating lease:

(a) if a lessee does not recognise a right-of-use asset with respect to a leased asset in its financial accounts, a fictional or hypothetical right-of-use asset cannot be created for purposes of the Pillar Two Rules;

(b) the lessor will be allowed to take a portion of the carrying value of an asset into account for computing the amount of its Eligible Tangible Asset if the lessor and the asset are located in the UAE in accordance with Articles 5.3.4 and 5.3.11;

(c) the amount referred to in paragraph (b) is equal to the excess, if any, of the lessor’s average carrying value of the asset determined at the beginning and end of the Fiscal Year over the average amount of the lessee’s right of use asset determined at the beginning and end of the Fiscal Year;

(d) for purposes of paragraph (c), if the lessee is not a Constituent Entity, the lessee’s right-of-use asset shall be equal to the un-discounted amount of payments remaining due under the lease, including any extensions that would be taken into account in determining a right-of-use asset under the financial accounting standard used to determine the Financial Accounting Net Income or Loss of the lessor;

(e) in the case of a short-term rental asset, the lessee’s right-of-use asset shall be deemed to be nil;

(f) for purposes of paragraph (e), a short-term rental asset is an asset that is regularly leased several times to different lessees during the Fiscal Year and the average lease period, including any renewals and extensions, with respect to each lessee is 30 days or less.

5.3.13 For purposes of Article 5.3.5, the carrying value of an asset shall:

(a) not include any increases and any subsequent incremental increase in depreciation resulting from the revaluation model;

(b) take into account adjustments that derive from purchase price allocation as a result of the acquisition of an Ownership Interest in an Entity by a member of the Group; and

(c) not take into account adjustments that derive from inter-company sales.

Article 5.4. Additional Current Top-up Tax

5.4.1 If the Effective Tax Rate and Top-up Tax for a prior Fiscal Year is required or permitted to be recalculated pursuant to an Effective Tax Rate Adjustment Article,

(a) the Effective Tax Rate and Top-up Tax for the prior Fiscal Year shall be recalculated in accordance with the rules of Article 5.1 through Article 5.3 after taking into account the adjustments to Adjusted Covered Taxes and Pillar Two Income or Loss required by the relevant Effective Tax Rate Adjustment Article; and

(b) any amount of incremental Top-up Tax resulting from such recalculation shall be treated as Additional Current Top-up Tax under Article 5.2.3 arising in the current Fiscal Year.

5.4.2 Unless Article 2.2 applies, if there is an Additional Current Top-up Tax attributable to the operation of Article 4.1.5, the Pillar Two Income of each Constituent Entity located in the UAE shall be equal to the result of the Top- up Tax allocated to such Entity under this Article divided by the Minimum Rate. The amount of Additional Current Top-up Tax allocated to each Constituent Entity for purposes of this Article shall be allocated only to Constituent Entities that record an Adjusted Covered Taxes amount that is less than zero and less than the Pillar Two Income or Loss of such Constituent Entity multiplied by the Minimum Rate. The allocation shall be made pro-rata based upon the following amount for each of those Constituent Entities:

(Pillar Two Income or Loss × Minimum Rate) - Adjusted Covered Taxes

Article 5.5. De minimis exclusion

5.5.1 At the election of the Filing Constituent Entity, and notwithstanding the requirements otherwise provided in Article 5, the Top-up Tax for the Constituent Entities located in the UAE shall be deemed to be zero for a Fiscal Year if, for such Fiscal Year:

(a) the Average Pillar Two Revenue is less than EUR 10 million; and

(b) the Average Pillar Two Income or Loss is a loss or is less than EUR 1 million. The election under this Article is an Annual Election.

5.5.2 For purposes of Article 5.5.1, the Average Pillar Two Revenue (or Pillar Two Income or Loss) is the average of the Pillar Two Revenue (or Pillar Two Income or Loss) for the current and the two preceding Fiscal Years. If there were no Constituent Entities with Pillar Two Revenue or Pillar Two Losses in the first or second preceding Fiscal Year, such year or years shall be excluded from the calculation of the Average Pillar Two Revenue and the Average Pillar Two Income or Loss.

5.5.3 For purposes of Article 5.5.2:

(a) the Pillar Two Revenue for a Fiscal Year is the sum of the revenue of all Constituent Entities (including Minority-Owned Constituent Entities) located in the UAE for such Fiscal Year, taking into account the adjustments calculated in accordance with Article 3;

(b) the Pillar Two Income or Loss for a Fiscal Year is the Net Pillar Two Income of the UAE, if any, or the Net Pillar Two Loss of the UAE (including the Pillar Two Income or Loss of Minority-Owned Constituent Entities located in the UAE);

(c) Post-filing Adjustments pursuant to an Effective Tax Rate Adjustment Article that result in a decrease of the Pillar Two Income or the Pillar Two Revenue for a previous Fiscal Year shall not be considered for purposes of Article 5.5 for the relevant Fiscal Year or Years; and

(d) Post-filing Adjustments pursuant to an Effective Tax Rate Adjustment Article that result in an increase of the Pillar Two Income or the Pillar Two Revenue for a previous Fiscal Year shall be taken into account for that Fiscal Year such that a recalculation shall be made to determine the application of Article 5.5 for the relevant Fiscal Year or Years.

5.5.4 An election under Article 5.5 shall not apply to a Constituent Entity that is a Stateless Constituent Entity subject to the provisions of this Decision and the revenue and Pillar Two Income or Loss of a Stateless Constituent Entity and of an Investment Entity shall be excluded from the computations in Article 5.5.3.

Article 5.6. Minority-Owned Constituent Entities

5.6.1 The computation of the Effective Tax Rate and Top-up Tax for the UAE in accordance with Articles 3 to 7, and Article 8.2 with respect to members of a Minority-Owned Subgroup shall apply as if they were a separate MNE Group. The Adjusted Covered Taxes and Pillar Two Income or Loss of members of a Minority-Owned Subgroup are excluded from the determination of the remainder of the MNE Group’s Effective Tax Rate in Article 5.1.1 and Net Pillar Two Income in Article 5.1.2.

5.6.2 The Effective Tax Rate and Top-up Tax of a Minority-Owned Constituent Entity that is not a member of a Minority-Owned Subgroup is computed on an entity basis in accordance with Articles 3 to 7, and Article 8.2. The Adjusted Covered Taxes and Pillar Two Income or Loss of the Minority-Owned Constituent Entity are excluded from the determination of the remainder of the MNE Group’s Effective Tax Rate in Article 5.1.1 and Net Pillar Two Income in Article 5.1.2.