GloBE Rules Series

ITQ G-

016

May 13, 2022

Question

An MNE Group consists of a UPE (located in U), XCo 1 (located in X), XCo 2 (also located in X), YCo (located in Y), ZCo (located in Z), and UCo (located in U).

The Ownership Interests are owned as follows:

XCo 1: 100% owned by UPE

XCo 2: 60% owned by XCo 1, 10% owned by UPE, and 30% owned by third parties
YCo: 60% owned by XCo 2, 30% owned by UPE, and 10% owned by third parties
ZCo: 100% owned by YCo
UCo: 100% owned by YCo

All shares in all companies are common shares, which carry an equal right to profit distributions and capital.

None of the Constituent Entities is an Investment Entity or a Flow-through Entity.

All of the jurisdictions have implemented the GloBE rules.

For the current Fiscal Year:

ZCo has Top-up Tax of 1,000, and GloBE Income of 25,000
UCo has Top-up Tax of 3,000, and GloBE Income of 10,000

Based on these facts, what are the amounts of IIR tax imposed on UPE, XCo 1, XCo 2 and YCo for the current Fiscal Year?

Answer

(1) XCo 1 is an Intermediate Parent Entity (IPE) (100% directly owned by UPE).

No Top-up Tax will be imposed on XCo 1, due to the fact that a Qualified IIR applies to UPE: Art. 2.1.3(a).

(2) YCo is a Partially-Owned Parent Entity (POPE) (28% directly or indirectly owned by third parties).

In regard to ZCo: YCo’s Allocable Share is 100%: Art. 2.2. Thus, Top-up Tax of 1,000 is imposed on YCo: Art. 2.1.4.

In regard to UCo: YCo’s Allocable Share is 100%: Art. 2.2. Thus, Top-up Tax of 3,000 is imposed on YCo: Art. 2.1.4. Note that the fact that UCo is located in U (same as UPE) has no impact on the application of Art. 2.1 to YCo: see Art. 2.1.6.

(3) XCo 2 is a POPE (30% directly owned by third parties).

Art. 2.1.5 does not apply to exclude XCo 2 from IIR tax, as XCo 2 does not wholly own YCo.

In regard to ZCo: XCo 2’s Allocable Share is 60%: Art. 2.2. Prima facie, Top-up Tax of 600 is imposed on XCo 2. However, Art. 2.3.1 reduces that Top-up Tax to nil.

In regard to UCo: XCo 2’s Allocable Share is 60%: Art. 2.2. Prima facie, Top-up Tax of 1,800 is imposed on XCo 2. However, Art. 2.3.1 reduces that Top-up Tax to nil.

(4) UPE: In regard to ZCo: UPE’s Allocable Share is 72% (i.e., 30% owned directly in YCo, plus 42% owned indirectly in YCo through XCo 1 and XCo 2): Art. 2.2. Prima facie, Top-up Tax of 720 is imposed on UPE. However, Art. 2.3.1 reduces that Top-up Tax to nil, due to the fact that all 72% is owned through YCo, which applies a Qualified IIR.

In regard to UCo: As UCo is located in U (same as UPE), Art. 2.1.6 provides an exclusion. Note: the Commentary allows jurisdictions to delete Art. 2.1.6 when they transpose the GloBE rules into domestic law.

(5) Summary: ZCo: Top-up Tax imposed on YCo: 1,000. UCo: Top-up Tax imposed on YCo: 3,000.

Do you agree?

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