GloBE Rules Series

ITQ G-

070

September 15, 2023

Question

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

LCo carries on a leasing business.

In the 2030 fiscal year, LCo owns 3 items of plant and equipment which it has leased to other companies:

1. Lease of asset under operating lease to XCo, an unrelated company located in jurisdiction A:

a. LCo's carrying value of asset: (i) start of year: 1,200; (ii) end of year: 1,100.

b. XCo's right-of-use asset recognised in its financial accounts: (i) start of year: 250; (ii) end of year: 150.

2. Lease of asset under operating lease to YCo, an unrelated company located in jurisdiction B:

a. LCo's carrying value of asset: (i) start of year: 1,500; (ii) end of year: 1,350.

b. YCo's right-of-use asset recognised in its financial accounts: (i) start of year: 400; (ii) end of year: 300.

3. Lease of asset under operating lease to ZCo, which is a Constituent Entity in LCo's MNE Group and which is located in jurisdiction A:

a. LCo's carrying value of asset: (i) start of year: 2,000; (ii) end of year: 1,800.

b. ZCo's right-of-use asset recognised in its financial accounts: (i) start of year: 300; (ii) end of year: 200.

Please assume that each asset is located in the jurisdiction in which the relevant lessee is located.

Based on this information, what is LCo's tangible asset carve-out in the 2030 fiscal year?

Answer

See July 2023 AG, chapter 3...

1. Lease to XCo

a. LCo's average carrying value: 1,150.

b. XCo's average amount of right-of-use asset: 200.

LCo's Eligible Tangible Asset = 1,150 – 200 = 950.

(See para. 43.1.5 of Comm to Art. 5.3.4).

2. Lease to YCo

As the asset is not located in jurisdiction A, LCo's Eligible Tangible Asset = 0.

(See para. 43.1.5 of Comm to Art. 5.3.4).

Note: I have assumed that the presence of the asset in jurisdiction B does not cause LCo to have a PE in jurisdiction B – see the definition of "Permanent Establishment" in Art. 10.1.1.

3. Lease to ZCo

LCo's average carrying value: 1,900.

LCo's Eligible Tangible Asset = 1,900.

(See para. 43.1.6 of Comm to Art. 5.3.4: "The carrying value of Eligible Tangible Assets is determined after taking into account elimination entries for intercompany leases. … Consequently, the lessee in an intercompany operating lease will not have a right-of-use asset and the lessor's carrying values for purposes of preparing the Consolidated Financial Statements are used to compute its carveout.").

4. Thus

LCo's aggregate Eligible Tangible Assets = 950 + 1,900 = 2,850.

Art. 5.3.4 rate in 2030: 6.2% (see Art. 9.2.2).

LCo's tangible asset carveout = 6.2% x 2,850 = 176.7.

Do you agree?

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