GloBE Rules Series

ITQ G-

091

March 8, 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.

ACo directly owns 100% of the shares in BCo.

For the 2024 fiscal year, an amount of income is included in ACo's jurisdiction A taxable income, under the jurisdiction A CFC rules. The income inclusion relates to certain CFC income derived by BCo during 2024. The jurisdiction A corporate income tax caused by this income inclusion is EUR 100,000.

Question 1: Based on this limited information, what impact (if any) will the EUR 100,000 have on the 2024 Simplified ETR computation (for the purposes of the Transitional CbCR Safe Harbour) for: (1) jurisdiction A; and (2) jurisdiction B?

Question 2: In 2024, ACo recharges the EUR 100,000 to BCo. Therefore, for the 2024 consolidation reporting packages (which are used to prepare the MNE Group's CbCR report), the recharged EUR 100,000 is reflected as an income (or negative expense) item in ACo’s accounting profit, and as an expense item in BCo’s accounting profit. Based on this limited information, do your answers for Question 1 change?

Answer

Safe Harbours and Penalty Relief (SHPR) report's definitions:

"Simplified ETR": "is calculated by dividing the jurisdiction's Simplified Covered Taxes by its Profit (Loss) before Income Tax as reported on the MNE Group's Qualified CbC Report".
"Simplified Covered Taxes": "is a jurisdiction's income tax expense as reported on the MNE Group's Qualified Financial Statements, after eliminating any taxes that are not Covered Taxes and uncertain tax positions in the MNE Group's Qualified Financial Statements".

Q1:

The EUR 100,000 would be included in jurisdiction A's (i.e., ACo's) income tax expense. It is thus included in jurisdiction A's Simplified Covered Taxes (SCT). Allocation of CFC tax under Art. 4.3.2 is not required for the purposes of the Simplified ETR computation: para. 74.23, SHPR report (as inserted by the December 2023 AG).
The EUR 100,000 would not be included in jurisdiction B's (i.e., BCo's) income tax expense. It is thus not included in jurisdiction B's SCT. Also, no allocation is done under Art. 4.3.2 (see above).

Q2:

If the recharged EUR 100,000 is reflected as a negative expense item in ACo's income tax expense, then (presumably) the EUR 100,000 would not be included in jurisdiction A's SCT. However, if the EUR 100,000 is reflected as an income item (not in the income tax expense), the EUR 100,000 recharge should have no impact on jurisdiction A's SCT - i.e., the EUR 100,000 would remain as part of jurisdiction A's SCT.
There would be no impact on jurisdiction B's SCT, because ACo's CFC tax does not qualify as a "Covered Tax" for BCo (see definition in Art. 4.2.1(a): "with respect to its income or profits").

Do you agree?

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