GloBE Rules Series

ITQ G-

092

March 15, 2024

Question

Can a Qualified Refundable Tax Credit of EUR 100 cause a larger increase in Top-up Tax under the GloBE rules, than a Non-Qualified Refundable Tax Credit (which is not transferable) of EUR 100?

Answer

Note: I will assume that the tax credits are not subject to corporate income tax!

In most situations, a Qualified Refundable Tax Credit (QRTC) of EUR 100 will cause a smaller increase in Top-up Tax than a Non-Qualified Refundable Tax Credit (which is not transferable) (NQRTC) of EUR 100 …

Example A, assume: (1) GloBE Income (GI) = 1,000; (2) SBIE = 200; and Adjusted Covered Taxes (ACT) (before credit) = 120.

Therefore, before considering the credits: (1) ETR = 12%; (2) TUT% = 3%; (3) Excess Profit (EP) = 1,000 – 200 = 800; and (4) TUT = 800 x 3% = 24.

If QRTC = 100, then: (1) GI = 1,100; (2) ETR = 120 / 1,100 = 10.9091%; (3) TUT% = 4.0909%; (4) EP = 1,100 – 200 = 900; and (5) TUT = 900 x 4.0909% = 36.8181.

Alternatively, if NQRTC = 100, then: (1) GI = 1,000; (2) ACT = 120 – 100 = 20; (3) ETR = 20 / 1,000 = 2%; (4) TUT% = 13%; (5) EP = 800; and (6) TUT = 800 x 13% = 104.

However, in some situations, a QRTC of EUR 100 will cause a larger increase in TUT than a NQRTC of EUR 100 …

Example B, assume: GI = 1,000; (2) SBIE = 980; (3) ACT (before credit) = 120.

Therefore, before considering the credits: (1) ETR = 12%; (2) TUT% = 3%; (3) EP = 1,000 – 980 = 20; and (4) TUT = 20 x 3% = 0.6.

If QRTC = 100, then: (1) GI = 1,100; (2) ETR = 120 / 1,100 = 10.9091%; (3) TUT% = 4.0909%; (4) EP = 1,100 – 980 = 120; and (5) TUT = 120 x 4.0909% = 4.9091.

Alternatively, if NQRTC = 100, then: (1) GI = 1,000; (2) ACT = 120 – 100 = 20; (3) ETR = 20 / 1,000 = 2%; (4) TUT% = 13%; (5) EP = 20; and (6) TUT = 20 x 13% = 2.6.

As you can see, the proportion that SBIE is to GI is the key factor.

Do you agree?

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