GloBE Rules Series

ITQ G-

079

December 1, 2023

Question

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

The UPE is a company located in jurisdiction U, which has implemented the GloBE rules. The UPE's "Ownership Interest" in XCo is 100%.

Jurisdiction X has also implemented the GloBE rules and a QDMTT.

For the purpose of computing GloBE Income under the QDMTT, jurisdiction X requires its local accounting standard to be used, instead of the accounting standard which applies for the consolidated group accounts. That local accounting standard is an "Acceptable Financial Accounting Standard" for the purposes of the GloBE rules. Jurisdiction X also requires that local accounting standard to be used for the purpose of computing its corporate income tax.

Apart from that difference in accounting standard and apart from the 2 "mandatory variations" described in chapter 5 of the July 2023 AG, jurisdiction X's QDMTT is identical to the GloBE rules.

For the purposes of the GloBE rules, the jurisdiction X Jurisdictional Top-up Tax (before deducting QDMTT payable) in a fiscal year is EUR 2 million.

The jurisdiction X QDMTT charge imposed on XCo for that fiscal year is EUR 1.4 million.

Q1: Based on this information, what amount of IIR tax is payable by UPE, in regard to jurisdiction X?

Q2: What would be your answer to Q1, if the UPE's "Ownership Interest" in XCo is 80%, but all other facts and figures are unchanged?

Answer

Q1:

Unless a Safe Harbour applies, the IIR tax will be: 100% x (EUR 2.0m – EUR 1.4m) = EUR 0.6m (Art. 5.2.3).

However, if a Safe Harbour is available and is elected by the Filing Constituent Entity, the IIR tax will be deemed to be zero: Art. 8.2.1.

Based on the facts, it appears that the QDMTT Safe Harbour will be available:

QDMTT Accounting Standard is satisfied, because: (i) the QDMTT is computed based on the local financial accounting standard (which is an "Acceptable Financial Accounting Standard"); and (ii) that local financial accounting standard is required to be used for the purpose of computing the jurisdiction X corporate income tax (paras. 2 & 3 of "Standards for a QDMTT Safe Harbour", in chapter 5 of the July 2023 AG).
Consistency Standard is satisfied: para. 4 of "Standards …" (see above).
Administration Standard: I will assume this is satisfied: para. 5 of "Standards …" (see above).

Q2:

The question assumes this situation: UPE's "Ownership Interest" in XCo is 80%, but all other facts and figures are unchanged.

The fact that "all other facts and figures are unchanged" means that: (1) the X Jurisdictional Top-up Tax (before deducting QDMTT payable) is EUR 2m; and (2) the X QDMTT charge is EUR 1.4m.

Unless a Safe Harbour applies, the IIR tax will be: 80% x (EUR 2m – EUR 1.4m) = EUR 0.48m.

Is the QDMTT Safe Harbour available?

Based on the facts, jurisdiction X imposes the QDMTT on 100% of the Jurisdictional Top-up Tax, notwithstanding that the UPE's "Ownership Interest" is 80%. Thus, the Consistency Standard is satisfied: para. 46, chapter 5 of July 2023 AG.

As the other standards are satisfied (see above), the QDNTT Safe Harbour should be available.

Thus, if the QDMTT Safe Harbour is elected by the Filing Constituent Entity, the IIR tax will be zero: Art. 8.2.1.

Do you agree?

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