GloBE Rules Series

ITQ G-

072

September 29, 2023

Question

XCo, a general partnership formed under jurisdiction A law, has 2 partners: UCo (75% interest) and Third Party (25% interest). UCo, a company located in jurisdiction U, is the UPE of an MNE Group which is "within scope" of the GloBE rules. Third Party is also located in jurisdiction U.

XCo is treated as tax transparent in jurisdictions A, B and U.

UCo owns 100% of the shares in ACo, a company located in jurisdiction A.

XCo owns 100% of the shares in several companies located in jurisdiction B.

Jurisdictions U and A have each implemented the GloBE rules, including a QDMTT. Jurisdiction B has not implemented a QDMTT.

In the relevant fiscal year, the MNE Group has an amount of Top-up Tax in jurisdiction B.

Question 1: (a) Will IIR apply in respect of the jurisdiction B Top-up Tax?; (b) If so, on which entity or entities will the IIR tax be imposed?

Question 2: (a) In determining whether the MNE Group has a QDMTT liability in jurisdiction A, will the ETR and Top-up Tax be calculated on a jurisdictional basis or not?; (b) If there is a QDMTT liability in jurisdiction A, on which entity or entities will the tax be imposed?

Answer

1. Introduction

i. XCo is an Entity (defined in Art. 10.1.1).

ii. XCo is a Constituent Entity (defined in Art. 1.3.1).

iii. XCo is a Flow-through Entity and Tax Transparent Entity (both terms defined in Art. 10.2.1).

iv. Due to its requirement to apply an IIR under Art. 2.1 (see below), XCo is located in jurisdiction A (Art. 10.3.2).

v. XCo is a POPE (defined in Art. 10.1.1), on the assumption that it is not an Investment Entity.

2. IIR

i. XCo will be liable for IIR tax (in jurisdiction A) equal to 100% of the jurisdiction B Top-up Tax (Art. 2.1.4).

ii. Prima facie, UPE will be liable for IIR tax (in jurisdiction U) equal to 75% of the jurisdiction B Top-up Tax (Art. 2.1.1). However, Art. 2.3.2 will reduce that IIR tax to nil.

3. QDMTT

i. In principle, the ETR and Top-up Tax for QDMTT purposes will be calculated on a jurisdictional blending basis (i.e., XCo plus ACo): see para. 118.8.3 of Comm to definition of QDMTT in Art. 10.1.1 (introduced by July 2023 AG).

ii. However, XCo itself probably has no GloBE Income and no Covered Taxes. It should have no GloBE Income, due to the allocation of all its Financial Accounting Net Income or Loss to UPE and Third Party (Arts. 3.5.1, 3.5.3 & 3.5.5). And it should have no Covered Taxes, due to the fact that it is tax transparent in jurisdictions A and B, and also because of Art. 4.3.2(b).

iii. So, the only GloBE Income and Covered Taxes which will be available for jurisdictional blending should be ACo's.

iv. If there is a QDMTT liability, jurisdiction A is permitted to impose the QDMTT tax charge on ACo, or XCo, or "introduce a different mechanism to ensure that the tax liability … is enforceable": see para. 118.8.3 of Comm to definition of QDMTT in Art. 10.1.1.

Do you agree?

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