GloBE Rules Series

ITQ G-

067

August 18, 2023

Question

ACo, a company located in jurisdiction X, is a Constituent Entity in the A MNE Group, which is "within scope" of the GloBE rules.

ACo makes energy-saving investments in jurisdiction X, which entitles ACo to a EUR 100 tax credit.

The tax credit entitles the holder to a credit of EUR 100 against its corporate income tax liabilities for the current tax year (year 1) and for any of the 3 subsequent tax years. The credit can be claimed in whole or in part in any of those 4 years (provided the aggregate does not exceed EUR 100).

The tax credit is not refundable. However, it is transferable (once only) to a related or unrelated party. If it is transferred, jurisdiction X law has no requirements regarding the price (if any) for the transfer.

As ACo does not have sufficient tax capacity in year 1 to use the tax credit, ACo transfers it in year 1 to BCo, for a price of EUR 90.

BCo, a company located in jurisdiction X, is a Constituent Entity in the B MNE Group, which is "within scope" of the GloBE rules.

ACo and BCo are not related.

BCo uses EUR 60 of the tax credit in year 2, and the remaining EUR 40 of the tax credit in year 3, against its jurisdiction X corporate income tax liabilities.

The jurisdiction X tax year and the Fiscal Year (for GloBE purposes) for ACo and BCo (respectively), is the calendar year.

Based on this information, what is the GloBE treatment of ACo and BCo in respect of the tax credit?

Answer

The following analysis is based on July 2023 AG, chapter 2…

1. ACo:

ACo is the Originator of the tax credit (amended para. 111 of Comm to Art. 3.2.4).

The tax credit is not a QRTC or NQRTC, because it is not refundable.

The tax credit is an MTTC in ACo's hands, because:

i. Legal transferability standard is satisfied - ACo transfers the tax credit to an unrelated party (BCo) in year 1.

ii. Marketability standard is satisfied - transfer price (EUR 90) exceeds 80% of the net present value (NPV) of the tax credit (EUR 100).

(See para. 112.1 in Comm to Art. 3.2.4).

Thus, ACo's GloBE treatment:

a. Transfer price (EUR 90) included in ACo's GloBE Income in year 1.

b. The tax credit is not taken into account in computing ACo's Adjusted Covered Taxes.

(See para. 112.5 in Comm to Art. 3.2.4; and amended para. 5 of Comm to Art. 4.1.2(d).)

2. BCo:

BCo is a purchaser of the tax credit.

The tax credit is not an MTTC in BCo's hands, because:

i. Legal transferability standard is not satisfied - as the tax credit can be transferred only once, BCo cannot transfer the tax credit.

ii. Marketability standard is satisfied - BCo's purchase price (EUR 90) exceeds 80% of the NPV of the tax credit (EUR 100).

(See para. 112.1 in Comm to Art. 3.2.4).

The tax credit is a Non-MTTC in BCo's hands, because:

i. The tax credit is not an MTTC.

ii. BCo is a purchaser. (See para. 14.2 of Comm to Art. 4.1.3(c)).

Thus, BCo's GloBE treatment:

a. The tax credit is not taken into account in computing BCo's GloBE Income

b. BCo's Covered Taxes in year 2 are reduced by (EUR 100 - EUR 90) x 60% = EUR 6

c. BCo's Covered Taxes in year 3 are reduced by (EUR 100 - EUR 90) X 40% = EUR 4

(See amended para. 113 of Comm to Art. 3.2.4; and para. 14.3(b) of Comm to Art. 4.1.3(c)).

Do you agree?

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