GloBE Rules Series

ITQ G-

020

June 24, 2022

Question

ACo, a company located in jurisdiction A, is the parent company of an MNE Group. The Group includes subsidiaries in several other jurisdictions.

Jurisdiction A has implemented the GloBE rules. A's implementing legislation uses the Euro.

ACo prepares Euro-denominated consolidated financial statements for the Group, in accordance with an Acceptable Financial Accounting Standard (defined in Art. 10.1.1).

ACo’s consolidated financial statements reported these amounts of revenue in the previous 4 Fiscal Years and the current Fiscal Year (defined in Art. 10.1.1):

Fiscal Year 1: EUR 700 million
Fiscal Year 2: EUR 600 million
Fiscal Year 3: EUR 740 million
Fiscal Year 4: EUR 760 million
Fiscal Year 5 (current year): EUR 720 million

All of these Fiscal Years were 12 months in duration, except Fiscal Year 2 which was 9 months (due to a change in year-end).

For many years, 60% of the shares in ACo have been owned by the B Family Trust, which is a trust created in jurisdiction X. The trustee and beneficiaries of the trust are members of the B family, who all reside in X. The remaining 40% of the shares in ACo are owned by third parties.

Jurisdiction X has not implemented the GloBE rules. Although the trust law of X requires simple accounting records to be kept by all trusts created in X, consolidated financial statements are not required. Consequently, the B Family Trust has not prepared consolidated financial statements.

Q1: For Fiscal Year 5, do the GloBE rules apply to the companies within the ACo Group?

Q2: If the answer to Q1 is “yes”, will the IIR apply to ACo?

Answer

Q1:

The B Family Trust is an "Entity", as defined in para. (b) of Art. 10.1.1.

The B Family Trust would be the UPE of the MNE Group: Art. 1.4.1(a). In particular, the B Family Trust would own a “Controlling Interest” in ACo, under para. (b) of the definition of "Controlling Interest" in Art. 10.1.1.

Accordingly, the revenue threshold test in Art. 1.1.1 must be applied to the B Family Trust’s "Consolidated Financial Statements", which would be the deemed consolidated financial statements in para. (d) of the definition in Art. 10.1.1.

Before doing so, we need to adjust the revenue threshold for Fiscal Year 2, to take into account the 9 months accounting period: Art. 1.1.2. The adjusted threshold would be EUR 562.5 million (i.e., 750 million x 75%).

The revenue threshold would therefore be satisfied in Fiscal Years 2 and 4: Art. 1.1.1.

Accordingly, the GloBE rules would apply to the companies within the ACo Group (i.e., the B Family Trust MNE Group) in Fiscal Year 5, despite the fact that the revenue threshold is not satisfied in Fiscal Year 5 itself.

Q2:

Although the B Family Trust is the UPE of the MNE Group, the IIR will not apply to the B Family Trust because jurisdiction X has not implemented the GloBE rules.

ACo would be an Intermediate Parent Entity, and therefore it would be subject to the IIR in jurisdiction A: Art. 2.1.2. Art. 2.1.3(a) is not applicable, as the IIR does not apply to the UPE.

Do you agree?

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