GloBE Rules Series

ITQ G-

057

May 5, 2023

Question

ACo is a Constituent Entity in a "within scope" MNE Group. It is the only Constituent Entity located in jurisdiction A. Jurisdiction A has a 15% corporate income tax rate.

In Years 1, 2, and 3, ACo has these financial numbers:

(1) Year 1:

GloBE Income: 300
Substance-based Income Exclusion (SBIE): 100
Tax loss (jurisdiction A corporate income tax): 100 (can be carried forward indefinitely)

(2) Year 2:

GloBE Income: 200
SBIE: 100
Taxable income (before deduction of carry-forward tax loss): 60
Taxable income (after deduction of carry-forward tax loss): 0

(3) Year 3:

GloBE Income: 250
SBIE: 120
Taxable income (before deduction of carry-forward tax loss): 40
Taxable income (after deduction of carry-forward tax loss): 0

Based on this limited information, what is the Top-up Tax for jurisdiction A in each of Years 1, 2, and 3?

Answer

(1) Year 1:

GloBE Income: 300
SBIE: 100
Current tax expense: 0
Deferred tax asset (DTA) in respect of tax loss: 15% x 100 = 15
Adjusted Covered Taxes (ACT) (prima facie): (15)
ETR (prima facie): (15) / 300 = (5)%
Top-up Tax Percentage (TTP) (prima facie) : 15% - (5)% = 20%

As TTP (prima facie) exceeds the Minimum Rate, the administrative procedure under Art. 5.2.1 applies (see AG, section 2.7):

ACT: 0
Excess Negative Tax Expense Carry-forward (ENTEC): 15
ETR: 0 / 300 = 0%
TTP: 15% - 0% = 15%
Top-up Tax: 15% x (300 – 100) = 30

(2) Year 2:

GloBE Income: 200
SBIE: 100
Current tax expense: 0
DTA partial reversal: 60 x 15% = 9
ACT (prima facie): 9
ACT (after applying ENTEC): 0
Remaining ENTEC: 15 – 9 = 6
ETR: 0 / 200 = 0%
TTP: 15%
Top-up Tax: 15% x (200 – 100) = 15

(3) Year 3:

GloBE Income: 250
SBIE: 120
Current tax expense: 0
DTA reversal: 40 x 15% = 6
ACT (prima facie): 6
ACT (after applying ENTEC): 0
Remaining ENTEC: 0
ETR: 0 / 250 = 0%
TTP: 15%
Top-up Tax: 15% x (250 – 120) = 19.5

Do you agree?

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