GloBE Rules Series

ITQ G-

084

January 12, 2024

Question

UCo 1, a company located in jurisdiction U, is the UPE of an MNE Group, which is "in scope" of the GloBE rules.

UCo 1 directly owns 70% of the shares in XCo 1, a company located in jurisdiction X. The other 30% of the shares in XCo 1 are held by numerous small investors. XCo 1's shares are listed on the X stock exchange.

XCo 1 directly owns 100% of the shares in each of 2 subsidiaries: XCo 2 (a company located in jurisdiction X), and UCo 2 (a company located in jurisdiction U) – i.e., XCo 2 and UCo 2 are sister subsidiaries.

XCo 1, XCo 2, and UCo 2 are all members of UCo 1's MNE Group.

Jurisdiction U and jurisdiction X have each implemented an IIR, but neither jurisdiction has implemented a QDMTT.

In the current year, please assume that UCo 1, UCo 2, XCo 1, and XCo 2 each has: (i) GloBE Income of 110, and (ii) Adjusted Covered Taxes of 5. Also, please assume that each of the 2 jurisdictions has SBIE of 20.

Finally, please assume that there are no other Constituent Entities located in either of the 2 jurisdictions.

Based on this limited information: (1) which companies (if any) will be required to pay IIR tax, and (2) what is the amount of that tax?

Would your answers be different if both jurisdiction U and jurisdiction X are EU Member States?

Answer

1. Juris. X TUT:

GI = 110 + 110 = 220

ACT = 5 + 5 = 10

SBIE = 20 EP = 200

ETR = 10 / 220 = 4.5455% (to 4 decimal places)

TUT% = 10.4545% x 200 = 20.909

2. Juris. U TUT:

Same as Juris. X – i.e., 20.909

3. Non-EU:

3.1 Juris. X TUT:

IIR levied on XCo 1: nil (Art. 2.1.6)

IIR levied on UCo 1: 70% x 20.909 = 14.6363

3.2 Juris. U TUT:

IIR levied on UCo 1: nil (Art. 2.1.6)

IIR levied on XCo 1 (POPE):

Limited to TUT of UCo 2 (computed under Art. 5.2.4) – i.e., 20.909 x 110 / 220 = 10.4545

4. EU:

4.1 Juris. X TUT:

IIR levied on XCo 1: 20.909 (Arts. 8(2) & 9(3), GloBE Directive)

IIR levied on UCo 1:

Prima facie: 14.6363

IIR offset applies when UPE holds an ownership interest "indirectly through" an IPE or a POPE: Art. 10, GloBE Directive.

That is the case for XCo 2, but not for XCo 1!

Thus, IIR levied on UCo 1 (in respect of XCo 1's TUT) = 14.6363 / 2 = 7.3186

Thus, double tax (on XCo 1 and UCo 1) in respect of XCo 1's TUT! Is this correct? See Note below.

4.2 Juris. U TUT:

IIR levied on XCo 1 (in respect of UCo 2's TUT): 20.909 x 110 / 220 = 10.4545

IIR levied on UCo 1:

In respect of UCo 2's TUT = nil (Art. 10, GloBE Directive)

In respect of UCo 1's TUT: 20.909 x 110 / 220 = 10.4545

5. Final answer:

Non-EU:

UCo 1: 14.6363

XCo 1: 10.4545

EU:

UCo 1: 7.3186 + 10.4545 = 17.7731

XCo 1: 20.909 + 10.4545 = 31.3635

In the EU scenario, there is an apparent double counting, due to the drafting of Art. 10, GloBE Directive!

Note on Art. 10, GloBE Directive:

This possible outcome is contrary to the purpose of Art. 10 (which corresponds to Art. 2.3 of the GloBE model rules). This possible outcome is caused by the extension of the IIR (in Art. 8(2) and Art. 9(3) of the GloBE Directive) to the Top-up Tax of the POPE. That situation is not provided for in the GloBE model rules. Thus, as Art. 10 is relevantly the same as Art. 2.3, the drafting issue has arisen.

Do you agree?

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