Website Last updated:

May 15, 2026

Article 3 details the methodology for determining Pillar Two Income or Loss, starting with Financial Accounting Net Income or Loss based on IFRS or other acceptable standards. It prescribes mandatory adjustments for items such as net taxes expense, excluded dividends, and equity gains/losses. The article covers complex scenarios including stock-based compensation elections, arm's length adjustments for intragroup transactions, and the exclusion of international shipping income. It also provides specific rules for allocating income between main entities and permanent establishments, and from flow-through entities to their owners.

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.