GloBE Rules Series

ITQ G-

089

February 23, 2024

Question

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

BCo, a company located in jurisdiction B, is also a Constituent Entity in the MNE Group. It is the only Constituent Entity located in jurisdiction B.

BCo sells goods to ACo, which distributes the goods to third parties in jurisdiction A.

For 2024, the group determines that a year-end transfer pricing adjustment of EUR 0.5m should be made in regard to the sale of goods from BCo to ACo – i.e., the adjustment will reduce the sale price by EUR 0.5m. This adjustment will be made by BCo giving to ACo, before year-end, a credit note for EUR 0.5m.

The adjustment will be reflected in the 2024 local statutory financial statements of the 2 companies, and it will also be reflected in the 2024 corporate income tax returns of the 2 companies. However, it is not reflected in the 2 companies' financial accounts (i.e., reporting packages) which are used to prepare the 2024 consolidated financial statements. Also, as the MNE Group uses those reporting packages to prepare the CbC Report, the adjustment will not be reflected in the CbC Report for 2024.

The reporting packages for 2024 show these numbers:

ACo: Total Revenue: EUR 9.5m; Profit Before Income Tax: EUR 0.7m
BCo: Total Revenue: EUR 10.2m; Profit Before Income Tax: EUR 1.3m

Based on this information, will jurisdictions A and B qualify for the Transitional CbCR Safe Harbour in 2024?

Answer

The key point to note is that the MNE Group uses the consolidation reporting packages to prepare the CbC Report.

This means that the reporting packages for ACo and BCo are their Qualified Financial Statements (QFS): para. 17, Safe Harbour and Penalty Relief (SHPR) report.

For the purposes of the Transitional CbCR Safe Harbour (TCSH), year-end transfer pricing adjustments are not permitted to be made to the QFS: para. 74.15, SHPR report (added by December 2023 AG).

Therefore, the TCSH calculations must be based on the numbers in the reporting packages, without the TP adjustments.

Based on those numbers: (1) ACo will satisfy the De minimis test; and (2) BCo will fail the De minimis test.

Therefore, jurisdiction A will qualify for the TCSH.

The question does not provide sufficient information to determine whether jurisdiction B will satisfy either the Simplified ETR test or the Routine profits test.

Do you agree?

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