GloBE Rules Series

ITQ G-

082

December 22, 2023

Question

USCo, a company situated in the US, is the UPE of an MNE Group which is "in scope" of the GloBE rules.

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

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

Q1: Assume that jurisdiction B levies 100 of QDMTT tax on BCo. Will USCo obtain a US foreign tax credit for that tax?

Q2: Assume that jurisdiction A levies 100 of IIR tax on ACo (in respect of the jurisdiction B Top-up Tax – i.e., on the assumption that jurisdiction B has not implemented a QDMTT). Will USCo obtain a US foreign tax credit for the jurisdiction A IIR tax?

Answer

Preliminary comments

Both questions require the application of Notice 2023-80, which was recently released by the US Treasury and IRS.

ACo and BCo are USCo's CFCs for the purposes of the US Subpart F and GILTI rules.

Therefore, in determining the jurisdiction B Jurisdictional Top-up Tax under the GloBE rules, USCo's US tax under Subpart F or GILTI which relates to BCo is allocable to BCo, pursuant to Art. 4.3.2(c).

Q1 refers to BCo's QDMTT tax liability.

Allocation of Subpart F or GILTI tax is not permitted in computing QDMTT.

Accordingly, the jurisdiction B QDMTT is not a "final top-up tax" (as defined in Notice 2023-80).

A foreign tax credit (FTC) is therefore allowed to USCo in regard to the QDMTT. The amount of the FTC is 80 (i.e., 100 x 80%), after the "20% haircut" under US section 960(d).

Q2 refers to ACo's IIR tax liability in regard to the jurisdiction B Jurisdictional Top-up Tax.

Allocation of Subpart F or GILTI tax is required in computing that IIR tax.

Accordingly, the jurisdiction A IIR tax is a "final top-up tax" (as defined in Notice 2023-80), regardless of whether there is any Subpart F or GILTI tax to actually allocate.

An FTC is therefore not allowed to USCo in regard to the IIR tax.

Do you agree?

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