GloBE Rules Series

ITQ G-

015

May 6, 2022

Question

An MNE Group consists of the UPE and 4 other Constituent Entities: ACo 1, ACo 2, BCo and CCo.

The UPE is located in jurisdiction X, which has not implemented the GloBE rules.

The UPE owns 100% of ACo 1, which is located in jurisdiction A.

The UPE owns a 90% Ownership Interest in ACo 2, which is also located in jurisdiction A. The other 10% Ownership Interests in ACo 2 are owned by third parties.

ACo 2 owns an 85% Ownership Interest in BCo, which is located in jurisdiction B. The other 15% Ownership Interests in BCo are owned by third parties.

BCo owns a 75% Ownership Interest in CCo, which is located in jurisdiction C. The other 25% Ownership Interests in CCo are owned by ACo 1.

None of the Constituent Entities is an Investment Entity.

Jurisdictions A, B and C have implemented the GloBE rules.

In the current Fiscal Year, CCo has an amount of Top-up Tax.

Which Constituent Entity or Entities will be subject to an IIR tax, under Art. 2.1, in regard to CCo's Top-up Tax?

Answer

Each of ACo 1 and ACo 2 is an Intermediate Parent Entity (IPE). Neither ACo 1 nor ACo 2 owns a Controlling Interest in the other – therefore, Art. 2.1.3(b) is not applicable.

BCo is a Partially-Owned Parent Entity (POPE). More than 20% of its Ownership Interests are held directly or indirectly by persons that are not Constituent Entities: (i) 15% Ownership Interests directly held by third parties, and (ii) 8.5% Ownership Interests indirectly held by third parties through ACo 2.

Therefore:

UPE: No IIR tax, because jurisdiction X has not implemented the GloBE rules – therefore, Art. 2.1.3(a) is not applicable.
ACo 1: IIR tax is imposed on ACo 1, equal to its Allocable Share of CCo's Top-up Tax: Art. 2.1.2. Under Art. 2.2, its Allocable Share is 25%.
ACo 2: IIR tax is imposed on ACo 2, equal to its Allocable Share of CCo's Top-up Tax: Art. 2.1.2. Under Art. 2.2, its Allocable Share is prima facie 63.75% (but see below).
BCo: IIR tax is imposed on BCo, equal to its Allocable Share of CCo's Top-up Tax: Art. 2.1.4. Under Art. 2.2, its Allocable Share is 75%.
Double taxation between ACo 2 and BCo is relieved by Art. 2.3: ACo 2’s 63.75% Allocable Share is reduced to nil.
Thus, final IIR tax liabilities: ACo 1 (Allocable Share = 25%) and BCo (Allocable Share = 75%).

Do you agree?

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