GloBE Rules Series

ITQ G-

069

September 8, 2023

Question

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

ACo incurs "green energy" expenditure in jurisdiction Y, 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 (which I will call year 1) or for any of the 4 subsequent tax years. The credit can be claimed in whole in one of those years, or in part in one or more years (providing the aggregate does not exceed EUR 100).

The tax credit:

Is not refundable
However, it can be transferred up to 2 times, at any time during the 5 years, to a related or unrelated party
In the situation where the tax credit is transferred, the jurisdiction Y tax law requires that the transfer price be at least 85% of the face value of the tax credit.

As ACo does not have sufficient tax capacity to use the tax credit, it transfers the tax credit in year 2 to BCo, for a price of EUR 88.

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

ACo and BCo are unrelated.

BCo acquired the tax credit for the purpose of deriving a profit on its sale.

In year 2, BCo transfers the tax credit to CCo, for a price of EUR 92.

CCo, a company located in jurisdiction Y, is a Constituent Entity in the C MNE Group, which is "within scope" of the GloBE rules.

ACo, BCo and CCo are unrelated.

CCo uses EUR 40 of the tax credit in year 2, and EUR 60 of the tax credit in year 3, in both cases against its jurisdiction Y corporate income tax liability.

Based on these facts, what is the GloBE treatment of ACo, BCo, and CCo?

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 – tax credit can be transferred to an unrelated party during year 1 or within 15 months of the end of year 1.

ii. Marketability standard is satisfied – transfer price (EUR 88) for transfer to BCo 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 88) included in ACo’s GloBE Income in year 1 (in lieu of EUR 100).

b. 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 an MTTC in BCo's hands, because:

i. Legal transferability standard is satisfied – tax credit can be transferred to an unrelated party in year 2.

ii. Marketability standard is satisfied – BCo’s purchase price (EUR 88) exceeds 80% of the NPV of the tax credit (EUR 100).

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

Thus, BCo's GloBE treatment:

a. Inclusion in BCo's GloBE Income in year 2: (EUR 92 – EUR 88) = EUR 4.

b. Tax credit is not taken into account in computing BCo’s Adjusted Covered Taxes.

(See para. 112.6 in Comm to Art. 3.2.4; and amended para. 5 of Comm to Art. 4.1.2(d)).

3. CCo

CCo is also a purchaser of the tax credit.

The tax credit is not an MTTC in CCo’s hands, because:

i. Legal transferability standard is not satisfied – as the tax credit can be transferred only 2 times, CCo cannot transfer the tax credit.

ii. Marketability standard is satisfied – CCo’s purchase price (EUR 92) 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 CCo's hands, because:

i. The tax credit is not an MTTC.

ii. CCo is a purchaser.

(See para. 14.2 of Comm to Art. 4.1.3(c)).

Thus, CCo's GloBE treatment:

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

b. CCo's Covered Taxes in year 2 are reduced by (EUR 100 – EUR 92) x 40% = EUR 3.2

c. CCo's Covered Taxes in year 3 are reduced by (EUR 100 – EUR 92) x 60% = EUR 4.8

(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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