GloBE Rules Series

ITQ G-

026

August 19, 2022

Question

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

The jurisdiction B corporate income tax has a 15% rate and allows the indefinite carryforward of tax losses.

In Year 1, BCo incurs:

GloBE Loss of 100,
Pre-tax accounting loss of 100 in its financial statements, and
Tax loss of 150

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

The difference of 50 between the pre-tax accounting loss and the tax loss is due to a permanent difference: 200% deductions for certain expenses.

In Year 2, BCo derives:

GloBE Income of 150,
Pre-tax accounting profit of 150 in its financial statements, and
Taxable profits of 150 (before deduction of the carried forward tax loss)

Jurisdiction B 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 B in Year 1 and Year 2?

Answer

Year 1

Current tax expense: nil

Total Deferred Tax Adjustment Amount, after applying Art. 4.4.2(c): (150) x 15% = (22.5)

Adjusted Covered Taxes: (22.5)

No ETR, as no GloBE Income (Art. 5.1)

Expected Adjusted Covered Taxes (defined in Art. 4.1.5): (100) x 15% = (15)

Additional Current Top-up Tax: (15) – (22.5) = 7.5 (Art. 4.1.5)

Thus, Jurisdictional Top-up Tax (Art. 5.2.3): 0 + 7.5 – 0 = 7.5

Year 2

Current tax expense: nil

Total Deferred Tax Adjustment Amount: 22.5

Adjusted Covered Taxes: 22.5

ETR: 22.5 / 150 = 15%

Top-up Tax: nil

Final answer

7.5 (Year 1) + 0 (Year 2)

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