GloBE Rules Series

ITQ G-

013

April 22, 2022

Question

An MNE Group has 3 Constituent Entities (ACo, BCo and CCo) located in jurisdiction X.

The MNE Group uses the calendar year as its Fiscal Year.

ACo has these financial numbers for Fiscal Years 1 to 3:

Year 1:
- GloBE Revenue: EUR 5 million
- GloBE Income: EUR 0.8 million
Year 2:
- GloBE Revenue: EUR 7 million
- GloBE Income: EUR 0.7 million
Year 3:
- GloBE Revenue: EUR 12 million
- GloBE Loss: EUR 0.1 million

BCo has these financial numbers for Fiscal Years 1 to 3:

Year 1 (BCo was dormant in Year 1):
- GloBE Revenue: EUR 0
- GloBE Income or Loss: EUR 0
Year 2:
- GloBE Revenue: EUR 4 million (including EUR 3 million from services provided to ACo)
- GloBE Income: EUR 0.2 million
Year 3:
- GloBE Revenue: EUR 3 million (including EUR 2 million from services provided to ACo)
- GloBE Income: EUR 0.3 million

CCo was formed on 1 April in Year 2, and commenced operations immediately.

CCo has these financial numbers for Fiscal Years 2 & 3:

Year 2:
- GloBE Revenue: EUR 0.75 million
- GloBE Loss: EUR 0.3 million
Year 3:
- GloBE Revenue: EUR 1 million
- GloBE Loss: EUR 0.4 million

Note: The "GloBE Revenue" for each Fiscal Year is the Entity's revenue for that year, taking into account the adjustments in Chapter 3 of the GloBE model rules.

Is the MNE Group entitled to make a "de minimis exclusion" election for Year 3?

Answer

Preliminary points:

1. In Year 1, BCo was dormant and CCo had not been formed. Nevertheless, due to the existence and operation of ACo in Year 1, Year 1 is included in the calculation of averages. In other words, the second sentence in Art. 5.5.2 does not apply.

2. CCo was formed on 1 April in Year 2 and commenced operations immediately. Thus, its Year 2 numbers need to be converted into equivalent 12 month numbers. Thus, CCo's GloBE Revenue for Year 2 becomes: EUR 0.75 million x 4/3 = EUR 1 million; and its GloBE Loss becomes: EUR 0.3 million x 4/3 = EUR 0.4 million.

3. BCo's GloBE Revenue for Years 2 & 3 includes significant amounts of revenue from services provided to ACo. No adjustment is made for such intra-group revenue.

GloBE Revenue (in EUR millions):

Year 1: 5 + 0 = 5

Year 2: 7 + 4 + 1 = 12

Year 3: 12 + 3 + 1 = 16

Average GloBE Revenue (in EUR millions) = (5 + 12 + 16) / 3 = 11

GloBE Income or Loss (in EUR millions):

Year 1: 0.8 + 0 = 0.8

Year 2: 0.7 + 0.2 + (0.4) = 0.5

Year 3: (0.1) + 0.3 + (0.4) = (0.2)

Average GloBE Income or Loss (in EUR millions) = (0.8 + 0.5 + (0.2)) / 3 = 0.4 (rounded)

As the Average GloBE Revenue is not less than EUR 10 million, Art. 5.5.1(a) is not satisfied. Thus, the Group is not entitled to make a "de minimis exclusion" election for Year 3.

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