GloBE Rules Series

ITQ G-

025

August 12, 2022

Question

ACo is the only Constituent Entity (within an "in-scope" MNE Group) which is located in jurisdiction A.

The jurisdiction A corporate income tax has a 5% standard rate and allows the indefinite carryforward of tax losses.

In Year 1, ACo incurs:

GloBE Loss of 100,
Pre-tax accounting loss of 100 in its financial statements, and
Tax loss of 100

For financial accounting purposes, ACo does not recognise a deferred tax asset.

In Year 2, ACo derives:

GloBE Income of 100,
Pre-tax accounting profit of 100 in its financial statements, and
Taxable profits of 100 (before deduction of the carried forward tax loss)

Jurisdiction A has no Substance-based Income Exclusion and no Qualified Domestic Minimum Top-up Tax, in either Year 1 or Year 2.

What amounts of Top-up Tax (if any) will arise for jurisdiction A in Year 1 and Year 2?

Answer

If the MNE Group does not make a Group Loss Election under Art. 4.5:

Year 1:

Due to the GloBE Loss, jurisdiction A has no ETR (Art. 5.1) and no Top-up Tax computed under Art. 5.2.

ACo's Adjusted Covered Taxes:

Current tax: nil
Total Deferred Tax Adjustment Amount (after 15% recast and applying Art. 4.4.2(c)): (15)
Total Adjusted Covered Taxes: (15)

Expected Adjusted Covered Taxes Amount (defined in Art. 4.1.5) is (15).

Thus, Art. 4.1.5 does not apply to determine an amount of Addtional Current Top-up Tax.

Therefore, no Top-up Tax in Year 1.

Year 2:

ACo's Adjusted Covered Taxes:

Current tax: nil

Total Deferred Tax Adjustment Amount: 15

Total Adjusted Covered Taxes: 15

GloBE Income: 100

ETR: 15 / 100 = 15%

Thus, no Top-up Tax in Year 2.

If the MNE Group makes a Group Loss Election under Art. 4.5:

Year 1:

Due to the GloBE Loss, jurisdiction A has no ETR (Art. 5.1) and no Top-up Tax computed under Art. 5.2.

ACo's Adjusted Covered Taxes:

Current tax: nil
Total Deferred Tax Adjustment Amount: nil (Art. 4.4 rules do not apply)
Total Adjusted Covered Taxes: nil

Expected Adjusted Covered Taxes Amount (defined in Art. 4.1.5) is (15).

Thus, Art. 4.1.5 does not apply to determine an amount of Additional Current Top-up Tax.

Therefore, no Top-up Tax in Year 1.

Also, under Art. 4.5.1, jurisdiction A has a GloBE Loss Deferred Tax Asset = 15.

Year 2:

All 15 of the GloBE Loss Deferred Tax Asset is used in Year 2 (Art. 4.5.3).

That causes ACo to have an addition of 15 to Covered Taxes in Year 2 (Art. 4.1.2(b)).

ACo's Adjusted Covered Taxes:

Current tax: nil
Total Deferred Tax Adjustment Amount: nil
Addition to Covered Taxes (Art. 4.1.2(b)): 15
Total Adjusted Covered Taxes: 15

GloBE Income: 100

ETR: 15 / 100 = 15%

Thus, no Top-up Tax in Year 2.

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