GloBE Rules Series

ITQ G-

073

October 6, 2023

Question

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

ACo owns 100% of the shares in BCo, a company located in jurisdiction B. BCo is the only Constituent Entity located in jurisdiction B.

Both ACo and BCo use the calendar year as their fiscal year.

For the year ending 31 December 20X1, BCo derives a significant after-tax profit.

In March 20X2, BCo's board of directors accepts the audited 20X1 financial statements, and it resolves that a final dividend of 100 (from the 20X1 profit) be paid to ACo on 1 May 20X2.

That dividend of 100 is paid on 1 May 20X2. In accordance with the jurisdiction B law, BCo deducts withholding tax of 10 from the dividend, and pays the remainder of 90 to ACo. The jurisdiction B withholding tax is a final tax.

For jurisdiction A tax purposes, ACo is entitled to a 95% participation exemption, and a foreign tax credit for part of the withholding tax. After applying both of these reliefs, ACo is liable for 1 of jurisdiction A tax on the dividend.

Question 1: For the purpose of computing the jurisdiction B Top-up Tax under the GloBE rules, will any tax in respect of the dividend be taken into account: (a) for the 20X1 fiscal year; or (b) for the 20X2 fiscal year?

Question 2: For the purpose of computing the jurisdiction B Top-up Tax under jurisdiction B's QDMTT, will any tax in respect of the dividend be taken into account: (a) for the 20X1 fiscal year; or (b) for the 20X2 fiscal year?

Answer

This question focuses on the application of Art. 4.3.2(e), for GloBE and QDMTT purposes…

Q1(a): No: Art. 4.3.2(e) allocates taxes on distributions during the Fiscal Year. As the dividend was paid in 20X2, the taxes on the dividend are not allocated for 20X1.

Q1(b): Yes, both the jurisdiction B withholding tax of 10 and the jurisdiction A tax of 1, will be allocated to BCo for 20X2.

Q2(a): No, for the same reason as given for Q1(a) above.

Q2(b): Yes, the jurisdiction B withholding tax of 10 will be allocated to BCo for 20X2. However, the jurisdiction A tax of 1 will not be allocated to BCo, for QDMTT purposes: para. 118.30 of Comm on definition of "Qualified Domestic Minimum Top-up Tax" in Art.10.1.1, as amended by July 2023 AG.

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.