GloBE Rules Series

ITQ G-

050

March 10, 2023

Question

ACo 1, a private company located in jurisdiction A, is an "investment entity", as defined in IFRS 10. The shares in ACo 1 are owned by several (unrelated) individual investors.

Jurisdiction A law does not require private companies to prepare consolidated financial statements, and ACo 1 does not do so.

As part of its investment business, ACo 1 directly owns common shares (with the percentage ownership shown) in the following companies:

ACo 2 (100%)
ACo 3 (80%)
ACo 4 (70%)
BCo 1 (60%)
BCo 2 (70%)
CCo (100%)

ACo 2-4 are located in jurisdiction A, BCo 1-2 are located in jurisdiction B, and CCo is located in jurisdiction C. All of these companies are operating companies, except CCo (which is a pure holding company).

CCo owns 100% of the shares in DCo, an operating company located in jurisdiction D.

IFRS is the applicable financial accounting standard in all 4 jurisdictions.

Jurisdiction C does not require pure holding companies to prepare consolidated financial statements, and CCo does not do so.

Based on this information:

Q1: Are there one or more MNE Groups, for the purposes of the GloBE rules?

Q2: If yes, which companies are members of that, or each, MNE Group?

Answer

1. Is ACo 1 a "UPE"?

As ACo 1 is an "investment entity" as defined in IFRS 10, it is required not to consolidate its subsidiaries, but instead it is required to measure an investment in a subsidiary at fair value through profit or loss: para. 31, IFRS 10. The facts do not indicate that the exception in para. 32 of IFRS 10 would be triggered.

ACo 1 therefore does not own a "Controlling Interest" (defined in Art. 10.1.1) in any of ACo 2-4, BCo 1-2, CCo, or DCo ("the 7 subsidiaries"). In particular, the "deemed consolidation test" in para. (b) of the "Controlling Interest" definition does not apply: even if the jurisdiction A law did require private companies to prepare consolidated financial statements, IFRS (which is the applicable financial accounting standard in jurisdiction A) requires ACo 1 not to consolidate the 7 subsidiaries.

ACo 1 therefore is not an "Ultimate Parent Entity" (defined in Art. 1.4.1) in respect of the 7 subsidiaries.

Thus, ACo 1 and the 7 subsidiaries do not satisfy the Art. 1.2.2 definition of "Group", and therefore they do not constitute an "MNE Group" (defined in Art. 1.2.1).

2. Is CCo a "UPE"?

CCo is a "pure holding company". The facts do not state that CCo is an "investment entity" as defined in IFRS 10, and therefore presumably it is not.

Jurisdiction C law does not require CCo to prepare consolidated financial statements. However, if the jurisdiction C law did require CCo to do that, IFRS 10 would require CCo to consolidate DCo.

Therefore, CCo owns the "Controlling Interest" in DCo, under para. (b) of the definition in Art. 10.1.1. Also, CCo is deemed to have prepared consolidated financial statements which include DCo (see para. (d) of the definition of "Consolidated Financial Statements" in Art. 10.1.1).

Thus, CCo is a "UPE" (Art. 1.4.1), CCo & DCo are a "Group" (Art. 1.2.2), and (because DCo is not located in jurisdiction C) CCo & DCo are an "MNE Group".

3. Administrative Guidance (AG)

The above issues are discussed in AG, section 1.2.4 (Examples).

4. Final answers

Q1: 1 MNE Group

Q2: CCo & DCo

Do you agree?

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