GloBE Rules Series

ITQ G-

018

June 10, 2022

Question

ACo, located in A, is the UPE of an MNE Group.

ACo directly owns 100% of BCo (located in B), 70% of CCo (located in C), 100% of DCo (located in D), and 40% of ECo (located in E).

The other 30% of CCo is directly owned by third parties.

BCo directly owns 15% of ECo, and CCo directly owns 25% of ECo. The other 20% of ECo is directly owned by third parties.

All of the shares in all of the companies are common shares, with an equal right to profit distributions and capital.

A, B, C and D have implemented the GloBE rules, but E has not.

ECo is a Low-Taxed Constituent Entity. It has a Top-up Tax for the current Fiscal Year of 1,000.

Q1: What amount of IIR tax and UTPR tax will be imposed, and on which entity or entities?

Q2: Same question as Q1, with one change in the facts: A has not implemented the GloBE rules.

Answer

Q1:

ACo: an IIR tax of 725 (reflecting ACo’s 72.5% direct and indirect Ownership Interest in ECo) prima facie would be imposed on ACo. However, that amount would be reduced by 175 (reflecting ACo’s 17.5% indirect Ownership Interest in ECo through CCo, a POPE: Art. 2.3). Thus, final amount of IIR tax imposed on ACo would be 550.
BCo (an IPE): the prima facie IIR tax of 150 would be reduced to nil by Art. 2.1.3(a).
CCo (a POPE): an IIR tax of 250 (reflecting CCo's 25% Ownership Interest in ECo) would be imposed on CCo.
Thus, aggregate IIR tax = 550 (ACo) + 250 (CCo) = 800.
UTPR: prima facie, UTPR tax of 1,000 would be allocated (in aggregate) to ACo, BCo, CCo and DCo: Art. 2.4. However, ECo’s Top-up Tax of 1,000 is reduced to zero, as all of ACo's 72.5% Ownership Interests in ECo are held directly or indirectly by ACo and CCo, both of which are required to apply a Qualified IIR. Thus, no UTPR tax would be imposed.
Thus, final answer: IIR tax of 550 imposed on ACo, 250 of IIR tax imposed on CCo, and no UTPR tax imposed – a total tax of 800.

Q2:

BCo (an IPE): IIR tax of 150 (reflecting BCo's 15% Ownership Interest in ECo) would be imposed on BCo.
CCo (a POPE): IIR tax of 250 (reflecting CCo's 25% Ownership Interest in ECo) would be imposed on CCo.
Thus, aggregate IIR tax = 150 (BCo) + 250 (CCo) = 400.
UTPR: prima facie, UTPR tax of 1,000 would be allocated (in aggregate) to BCo, CCo and DCo: Art. 2.4. However, ECo's Top-up Tax of 1,000 would be reduced by 400 (the aggregate amount of Top-up Tax that is brought into charge under a Qualified IIR): Art. 2.5.3. Thus, the reduced UTPR tax of 600 would be allocated (in aggregate) to BCo, CCo and DCo (the amount allocated to each entity would be determined under Art. 2.6).
Thus, final answer: IIR tax of 150 imposed on BCo, IIR tax of 250 imposed on CCo, and aggregate UTPR tax of 600 imposed on BCo, CCo and DCo – a total tax of 1,000

Note the difference in the total tax in Q1 (800) vs. Q2 (1,000).

Do you agree?

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