GloBE Rules Series

ITQ G-

083

January 5, 2024

Question

UCo, a company located in jurisdiction U, is the UPE of an MNE Group which is "within scope" of the GloBE rules.

UCo directly owns 50% of the shares in YCo, a company resident in jurisdiction Y. YCo's shares are listed on a stock exchange in jurisdiction Y. The other 50% of the shares are held by numerous investors. YCo is controlled by UCo, and therefore YCo is included in UCo’s consolidated financial statements. YCo is the only Constituent Entity located in jurisdiction Y.

UCo also directly owns 60% of the shares in XCo2, a company located in jurisdiction X. The other 40% of the shares in XCo2 are owned by XCo1, an unrelated company located in jurisdiction X. XCo2 is the only Constituent Entity located in jurisdiction X.

Please assume that jurisdiction Y has Jurisdictional Top-up Tax of 100, for both GloBE and QDMTT purposes.

Based on this limited information:

If (i) jurisdiction Y has implemented a QDMTT, and (ii) the QDMTT is imposed on YCo: what is the amount of QDMTT tax which would be levied on YCo?
If jurisdiction U has implemented an IIR (and if jurisdiction Y has not implemented a QDMTT): what is the amount of IIR tax which would be levied on UCo?
If (i) jurisdiction Y has not implemented a QDMTT, (ii) jurisdiction U has not implemented an IIR, and (iii) jurisdiction X is the only jurisdiction (in which a Constituent Entity is located) to have implemented a UTPR: what is the amount of UTPR tax which would be levied on XCo2?

Answer

Q1:

If the QDMTT is imposed on YCo, the amount must be 100.

The Feb 2023 AG does not allow the amount of QDMTT to be "scaled down", to reflect UCo's 50% Ownership Interest. If the jurisdiction Y DMTT were to do so, it would lose its "qualified" status. See para. 118.10 of Comm to "QDMTT" definition in Art. 10.1.1 (added to Comm by Feb 2023 AG). Also, see ITQ193.

Para. 118.10 does allow jurisdiction Y not to impose QDMTT on YCo. However, as the question states that "the QDMTT is imposed on YCo", the amount must be 100.

Q2:

The amount of IIR tax imposed on UCo would be 50, reflecting UCo's 50% Ownership Interest in YCo: see Art. 2.2.

Q3:

The amount of UTPR tax imposed on XCo2 would be 100: see Arts. 2.5 and 2.6. Note that the GloBE rules do not "scale down" the amount of UTPR tax, to reflect UCo’s 50% Ownership Interest.

Comment:

This example shows 2 counter-intuitive aspects of the GloBE rules: (1) the fact that the amount of QDMTT is not "scaled down", to reflect UCo's 50% Ownership Interest (i.e., the QDMTT must be either 100 or 0), despite the fact that the potential IIR tax is only 50; and (2) the fact that the amount of UTPR tax is also not "scaled down", to reflect UCo’s 50% Ownership Interest (i.e., the UTPR tax must be 100), again despite the fact that the potential IIR tax is only 50.

Do you agree?

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