SBIE: The Substance-Based Income Exclusion in GloBE

Definition

The SBIE — the substance-based income exclusion — is the GloBE rules’ exclusion of a substance-based return from the covered profit (the profit the [jurisdictional ETR] (/docs/glossary/etr) is computed on) — the return on the substance the entity actually has in the jurisdiction (the payroll — the employees’ costs, and the tangible assets — the PP&E, the property, plant and equipment) that is excluded from the covered profit, so that the substance the jurisdiction hosts is not double-charged (the return on the substance excluded, the ETR computed on the remaining profit — the exclusion the ETR’s numerator reduction, the jurisdiction’s substance the exclusion’s basis). The mechanics (the GloBE rules computation): the SBIE = (the payroll cost in the jurisdiction × the payroll multiplier) + (the tangible asset return — the PP&E, at the asset’s depreciation rate or the prescribed rate — × the tangible-asset multiplier) — the two multipliers the GloBE prescription (the payroll multiplier the 5% of the payroll cost, the tangible-asset multiplier the 5% of the eligible tangible assets’ value — the [ETR and SBIE guide] (/docs/pillar-two/etr-sbie) carries the exact multipliers, the eligible payroll, the eligible tangible assets, the worked example). The effect: the jurisdiction’s substance (the payroll, the PP&E) generates a return that is excluded from the covered profit — the ETR higher (the numerator the covered profit reduced, the ETR the ratio improved), the sub-15% finding the SBIE can avoid (the exclusion the top-up’s reducer — the substance the jurisdiction’s defence, the [transitional safe harbour] (/docs/glossary/transitional-safe-harbour) the CbCR-based fast path the SBIE’s complement). The [ETR and SBIE guide] (/docs/pillar-two/etr-sbie) is the full treatment — the ETR’s components, the exclusions that matter (the SBIE, the covered taxes, the excluded taxes), the worked example.

The SBIE, in one computation:
  1. The payroll (the eligible payroll cost in the jurisdiction — the employees’ costs)
  2. The payroll exclusion (the payroll cost × the payroll multiplier — the 5% prescription)
  3. The tangible assets (the eligible PP&E in the jurisdiction — the property, plant, equipment)
  4. The tangible-asset exclusion (the eligible tangible assets × the tangible-asset multiplier — the 5% prescription)
  5. The SBIE (the payroll exclusion + the tangible-asset exclusion — the covered profit reduced, the ETR improved)

The element	The content
The basis	The substance the entity has in the jurisdiction — the payroll (the eligible employees’ costs) and the tangible assets (the eligible PP&E — the property, plant, equipment)
The multipliers	The GloBE prescription — the payroll multiplier (the 5% of the payroll cost) and the tangible-asset multiplier (the 5% of the eligible tangible assets’ value) — the ETR and SBIE guide the exact values
The exclusion	The SBIE (the payroll exclusion + the tangible-asset exclusion) — the covered profit reduced (the ETR’s numerator, the exclusion the reduction)
The effect	The ETR improved (the covered profit reduced, the ETR the ratio improved) — the sub-15% finding the SBIE can avoid (the top-up’s reducer, the substance the jurisdiction’s defence)

The working read (the ETR and SBIE guide): the SBIE is the [GloBE] (/docs/glossary/globe) computation’s substance correction — the jurisdictional ETR is the tax over the covered profit, and the SBIE excludes from the covered profit the return on the substance the jurisdiction hosts (the payroll, the PP&E) — the design’s logic: the substance (the employees, the tangible assets) is the jurisdiction’s real economic activity, and its return is not the undertaxed profit the top-up tax targets (the top-up on the residual — the intangible-driven, the substance-light — the profit, the SBIE the substance’s return excluded). The computation (the GloBE rules): the covered profit (the jurisdictional profit, the adjustments), the SBIE (the payroll

• the tangible-asset exclusion, the multipliers), the net covered profit (the ETR’s numerator) — the [ETR and SBIE guide] (/docs/pillar-two/etr-sbie) the worked example (the payroll, the PP&E, the multipliers, the ETR before and after the SBIE). The interaction with the [transitional safe harbour] (/docs/glossary/transitional-safe-harbour) (the 3-year CbCR-based fast path): the SBIE is the computation’s exclusion (the ETR’s numerator reduced), the safe harbour the test’s fast path (the CbCR-based ETR the 5% differential the pass) — the two, the top-up’s reducers (the SBIE the computation’s, the safe harbour the test’s), the [pillar two for tp teams] (/docs/pillar-two/pillar-two-for-tp-teams) checklist the data (the payroll, the PP&E, the CbCR rows — the SBIE’s inputs, the reconciliation).

Example

An entity in Jurisdiction J (the manufacturing sub): the jurisdictional profit ₹100 cr, the tax ₹25 cr (the 25% rate), the eligible payroll ₹60 cr, the eligible PP&E ₹200 cr (the tangible assets). The SBIE computation (the GloBE multipliers — the payroll 5%, the tangible-asset 5%):

The step	The computation
The payroll exclusion	₹60 cr × 5% = ₹3 cr (the payroll cost × the payroll multiplier)
The tangible-asset exclusion	₹200 cr × 5% = ₹10 cr (the eligible PP&E × the tangible-asset multiplier)
The SBIE	₹3 cr + ₹10 cr = ₹13 cr (the covered profit reduced)
The covered profit (the ETR’s numerator)	₹100 cr − ₹13 cr = ₹87 cr (the SBIE excluded)
The ETR (before the SBIE)	₹25 cr / ₹100 cr = 25% (above 15% — no top-up)
The ETR (after the SBIE)	₹25 cr / ₹87 cr = 28.7% (the SBIE the ETR improved — the substance the jurisdiction’s defence)

The point: the SBIE reduces the covered profit (the numerator), improves the ETR (the ratio) — the jurisdiction’s substance (the payroll, the PP&E) the exclusion’s basis, the substance-light entity (the IP holding, the low payroll, the low PP&E) the SBIE’s non-beneficiary (the covered profit the full, the ETR the low, the top-up the exposure — the [pillar two guide] (/docs/pillar-two/pillar-two-guide)’s classic fact pattern). The ETR and SBIE guide carries the full worked example (the payroll, the PP&E, the multipliers, the before/after ETR) — the SBIE’s computation, the substance the defence.

See also

• Effective Tax Rate and SBIE — The Exclusions That Matter
• GloBE Rules: How the Calculation Actually Works
• ETR (Effective Tax Rate)
• Transitional Safe Harbour

FAQ

What is the SBIE, and why does the GloBE exclude it? The SBIE (the substance-based income exclusion) is the GloBE exclusion of the substance-based return (the payroll — the employees’ costs — and the tangible assets — the PP&E) from the covered profit (the profit the jurisdictional ETR is computed on). The why: the substance (the employees, the tangible assets) is the jurisdiction’s real economic activity, and its return is not the undertaxed profit the top-up tax targets — the top-up on the residual (the intangible-driven, the substance-light profit), the SBIE the substance’s return excluded (the design’s logic: the substance hosted, the return on it, the exclusion). The ETR and SBIE guide the mechanics (the multipliers, the eligible payroll, the eligible tangible assets, the worked example).

What are the SBIE multipliers — the payroll and the tangible-asset? The GloBE prescription: the payroll multiplier (the 5% of the eligible payroll cost) and the tangible-asset multiplier (the 5% of the eligible tangible assets’ value) — the two multipliers the SBIE’s computation (the payroll exclusion + the tangible-asset exclusion = the SBIE). The eligible payroll (the employees’ costs, the eligible employees) and the eligible tangible assets (the PP&E, the eligible assets — the depreciation the asset’s value) are the GloBE definitions (the [ETR and SBIE guide] (/docs/pillar-two/etr-sbie) the exact values, the eligibility, the worked example) — the multipliers the computation, the eligibility the definition.

Does the SBIE help the substance-light entity (the IP holding)? No — the SBIE is the substance’s return excluded (the payroll, the PP&E) — the substance-light entity (the IP holding, the low payroll, the low PP&E) has little to exclude (the SBIE the small, the covered profit the full, the ETR the low, the top-up the exposure — the pillar two guide’s classic fact pattern). The SBIE helps the substance-heavy entity (the manufacturing, the services — the payroll, the PP&E — the SBIE the significant, the ETR the improved, the top-up the avoided/reduced) — the substance the jurisdiction’s defence, the substance-light the exposure. The ETR and SBIE guide the two cases (the substance-heavy the SBIE’s beneficiary, the substance-light the SBIE’s non-beneficiary) — the computation, the effect, the worked examples.