GloBE Rules Series

ITQ G-

071

September 22, 2023

Question

ACo, a company located in jurisdiction X, is a Constituent Entity in an MNE Group, which is "within scope" of the GloBE rules. ACo carries on a securities trading business from an office building which it owns in jurisdiction X.

ACo also leases some assets to other companies:

1. Lease to BCo

ACo leases (under an operating lease) 30% of the floor space of the building to BCo, a company located in jurisdiction X. BCo is not related to ACo and is not a member of any MNE Group.

In the 2031 fiscal year:

a. ACo's carrying value of the building: (i) start of year: 3,000; (ii) end of year: 2,900.

b. BCo's right-of-use asset recognised in its financial accounts: (i) start of year: 150; (ii) end of year: 75.

2. Lease to CCo

ACo also leases (under an operating lease) some office equipment to CCo, which is also a company located in jurisdiction X. The office equipment is located in jurisdiction X. CCo is not related to ACo and is not a member of any MNE Group.

In the 2031 fiscal year:

a. ACo's carrying value of office equipment: (i) start of year: 100; (ii) end of year: 80.

b. CCo does not recognise a right-of-use asset for the office equipment in its financial accounts.

3. Lease to DCo

ACo leases (under an operating lease) a motor vehicle to the jurisdiction X branch of DCo, a company located in jurisdiction Y. The vehicle is located in jurisdiction X. DCo is not related to ACo, but it is a Constituent Entity in an MNE Group which is "within scope" of the GloBE rules.

In the 2031 fiscal year:

a. ACo's carrying value of vehicle: (i) start of year: 200; (ii) end of year: 160.

b. DCo's right-of-use asset recognised in its financial accounts: (i) start of year: 40; (ii) end of year: 20.

Based on this information, what is ACo's tangible asset carve-out in the 2031 fiscal year?

Answer

See July 2023 AG, chapter 3 …

1. Lease to BCo

a. ACo's average carrying value: 2,950.

b. Allocation of carrying value, using percentage of floor space as the allocation key, between leased part and residual part: (i) leased part: 30% x 2,950 = 885; (ii) residual part: 70% x 2,950 = 2,065.

c. BCo's average amount of right-of-use asset: 112.5.

ACo's Eligible Tangible Asset = 2,065 + (885 - 112.5) = 2,837.5.

(See para. 43.1.7 of Comm to Art. 5.3.4).

2. Lease to CCo

a. ACo's average carrying value: 90.

b. CCo's right-of-use asset = 0.

ACo's Eligible Tangible Asset = 90.

(See para. 43.1.1 of Comm to Art. 5.3.4).

3. Lease to DCo

a. ACo's average carrying value: 180.

b. DCo's average amount of right-of-use asset: 30.

ACo's Eligible Tangible Asset = 180 - 30 = 150.

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

4. Thus

ACo's aggregate Eligible Tangible Assets = 2,837.5 + 90 + 150 = 3,077.5.

Art. 5.3.4 rate in 2031: 5.8% (see Art. 9.2.2).

ACo's tangible asset carveout = 5.8% x 3,077.5 = 153.875.

Do you agree?

ITQ Disclaimer

This International Tax Quiz (ITQ) contains general information only, and none of International Insights Pte Ltd, its employees or directors is, by means of this ITQ, rendering professional advice or services. You use the content of this ITQ strictly at your own risk. You should not rely on all or any part of the content of this ITQ in making decisions to take action (including inaction) in regard to tax or other matters. Before making any decision or taking any action (including inaction) that may affect your tax position, your finances or your business, you should consult a qualified professional advisor. None of International Insights Pte Ltd, its employees or directors shall be responsible for any loss whatsoever sustained by any person who relies on the content of this ITQ.