GloBE Rules Series

ITQ G-

023

July 29, 2022

Question

XCo is a Constituent Entity in an MNE Group, which is "within scope" of the GloBE rules.

XCo is located in jurisdiction X, which levies a corporate income tax.

In Year 1:

XCo purchases (at the start of Year 1) a fixed asset for 100, which it depreciates for financial accounting purposes at 50% per annum, and which it claims as a 100% deduction for income tax purposes in Year 1
XCo has GloBE Income of 500, after expensing 50 of depreciation for the fixed asset
XCo has taxable income (for the purposes of X corporate income tax) of 470, after deducting 100 for the fixed asset
XCo has no other temporary differences between its financial accounting pretax profit and taxable income
The X corporate income tax has a nominal rate of 25%

In Year 2:

XCo has GloBE Income of 620, after expensing 50 of depreciation for the fixed asset
XCo has taxable income of 580
XCo has no other temporary differences between its financial accounting pretax profit and taxable income
Jurisdiction X increases its corporate income tax nominal rate to 30% (effective in Year 2)

Based on these facts, what are XCo's Adjusted Covered Taxes and ETR in Years 1 and 2?

Answer

Year 1:

Current tax expense: 470 x 25% = 117.5
Deferred tax expense (financial accounting): 50 x 25% = 12.5
Total Deferred Tax Adjustment Amount (Art. 4.4.1): 50 x 15% = 7.5 (i.e., recast at 15%, no adjustments and no exclusions are relevant)
Adjusted Covered Taxes: 117.5 + 7.5 = 125
ETR: 125 / 500 = 25%

Year 2:

Current tax expense: 580 x 30% = 174
Total Deferred Tax Adjustment Amount (Art. 4.4.1): (7.5) (i.e., change in X tax rate is ignored: Art. 4.4.1(d))
Adjusted Covered Taxes: 174 + (7.5) = 166.5
ETR: 166.5 / 620 = 26.85%

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