GloBE Rules Series

ITQ G-

038

November 25, 2022

Question

Question 1

UPE 1 is the UPE of MNE Group 1, and UPE 2 is the UPE of MNE Group 2. Both MNE Group 1 and MNE Group 2 are "within scope" of the GloBE rules.

UPE 1 and UPE 2 each owns 50% of the issued shares in XCo, a company located in jurisdiction X. XCo has only one class of issued shares.

UPE 1 and UPE 2 each report XCo's financial results in their respective consolidated financial statements under the equity method.

XCo is the UPE of MNE Group 3, which is also "within scope" of the GloBE rules.

ACo, located in jurisdiction A, is a 100% subsidiary of XCo. ACo has a Top-up Tax of 100 in the current year.

What will be the impact, under the GloBE rules, on UPE 1, UPE 2, and XCo, in regard to ACo’s Top-up Tax? Please assume that all relevant jurisdictions (except jurisdiction A) have implemented the GloBE rules, and that ACo is the only Constituent Entity located in jurisdiction A.

Question 2

UPE 3 is the UPE of MNE Group 3; UPE 4 is the UPE of MNE Group 4; and UPE 5 is the UPE of MNE Group 5. All 3 groups are "within scope" of the GloBE rules.

The 3 UPEs are all shareholders in YCo, a company located in jurisdiction Y. YCo has only one class of issued shares. The percentages held are: UPE 3: 40%; UPE 4: 30%; and UPE 5: 30%.

UPE 3, UPE 4, and UPE 5 each report YCo's financial results in their respective consolidated financial statements under the equity method.

YCo has no subsidiaries or PEs.

If YCo were to compute its position under the GloBE rules, it would have a Top-up Tax of 200.

What will be the impact, under the GloBE rules, on UPE 3, UPE 4, and UPE 5, in regard to that Top-up Tax of 200? Please assume that all relevant jurisdictions (except jurisdiction Y) have implemented the GloBE rules.

Answer

Question 1

There will be no impact, under the GloBE rules, on either UPE 1 or UPE 2, for 2 reasons: (1) ACo is not a Constituent Entity of either MNE Group 1 or MNE Group 2, because it is not included in either Group's consolidated financial statements on a line-by-line basis (see the definition of "Constituent Entity" in Art. 1.3, and the definition of "Group" in Art. 1.2); and (2) XCo is excluded from the definition of "Joint Venture" in Art. 10.1.1 by para. (a), and therefore ACo is not a “JV Subsidiary” (Art. 10.1.1 definition).

An IIR tax liability of 100 will be imposed on XCo in jurisdiction X.

Question 2

There will be no impact, under the GloBE rules, on any of UPE 3, UPE 4 or UPE 5, for 2 reasons: (1) YCo is not a Constituent Entity of any of the MNE Groups, as it is not included in any Group’s consolidated financial statements on a line-by-line basis (see the definition of "Constituent Entity" in Art. 1.3, and the definition of "Group" in Art. 1.2); and (2) YCo is not a "Joint Venture" (Art. 10.1.1 definition) as none of the 3 UPEs has an Ownership Interest of at least 50%.

Thus, no IIR or UTPR tax liability.

Do you agree?

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