GloBE Rules Series

ITQ G-

094

April 5, 2024

Question

An MNE Group's UPE, which is located in jurisdiction U, is subject to the jurisdiction U CFC rules. Those CFC rules qualify as a Blended CFC Tax Regime, as defined in the February 2023 AG. Under the CFC rules, the foreign effective tax rate must be 13.125% in order to generate sufficient foreign tax credits (ignoring any foreign tax credit limitation) to prevent the imposition of a tax charge.

In the 2025 Fiscal Year, UPE has a tax charge of 50 under the CFC rules.

UPE directly owns shares in 4 CFCs. For the 2025 Fiscal Year, the CFCs have this information:

1. XCo 1 (located in jurisdiction X) (100% owned by UPE)

GloBE Income: 200
Covered Tax: 12
Attributable Income (for purposes of CFC rules): 80
Constituent Entity for GloBE purposes

2. XCo 2 (located in jurisdiction X) (80% owned by UPE; 20% owned by third parties)

GloBE Income: Nil
Covered Tax: 10
Attributable Income (for purposes of CFC rules): 70 (at 100% level)
Constituent Entity for GloBE purposes

3. XCo 3 (located in jurisdiction X) (25% owned by UPE; 75% owned by third parties)

GloBE Income: 150
Covered Tax: 30
Attributable Income (for purposes of CFC rules): 100 (at 100% level)
Constituent Entity for GloBE purposes

4. YCo (located in jurisdiction Y) (100% owned by UPE)

GloBE Income: 150
Covered Tax: 15
Attributable Income (for purposes of CFC rules): 50
Constituent Entity for GloBE purposes

Jurisdictions X and Y do not impose QDMTTs.

Based on this information, what will be the allocation of CFC tax under Art. 4.3.2(c)? Please ignore any possible cap under Art. 4.3.3.

Answer

Preliminary point

As XCo 3 is a Minority-Owned Constituent Entity (defined in Art. 10.1.1), Art. 5.6.2 requires its ETR to be calculated separately from XCo 1 and XCo 2. Therefore, for the purposes of the new para. 58.6.1 in the Commentary to Art. 4.3.2, there are 2 blending groups in jurisdiction X: XCo 1 and XCo 2 (together, a blending group) and XCo 3 (a blending group). New para. 58.6.1 was added by the December 2023 AG.

GloBE Jurisdictional ETRs: (i) XCo 1 / XCo 2: 22 / 200 = 11%; (ii) XCo 3: 30 / 150 = 20%; (iii) YCo: 15 / 150 = 10%.

Attributable Income of Entity: (i) XCo 1: 80; (ii) XCo 2: 56 (after applying 80% ownership level); (iii) XCo 3: 25 (after applying 25% ownership level); (iv) YCo : 50.

Blended CFC Allocation Key: (i) XCo 1: 80 x (13.125% - 11%) = 1.7; (ii) XCo 2: 56 x (13.125% - 11%) = 1.19; (iii) XCo 3: nil (as GloBE Jurisdictional ETR exceeds Applicable Rate of 13.125%); (iv) YCo: 50 x (13.125% - 10%) = 1.5625.

Sum of All Blended CFC Allocation Keys: 1.7 + 1.19 + 0 + 1.5625 = 4.4525.

Blended CFC tax allocated to Entity: (i) XCo 1: 1.7 / 4.4525 x 50 = 19.09; (ii) XCo 2: 1.19 / 4.4525 x 50 = 13.36; (iii) XCo 3: nil; (iv) YCo: 1.5625 / 4.4525 x 50 = 17.55.

Do you agree?

ITQ Disclaimer

This International Tax Quiz (ITQ) contains general information only, and none of International Insights Pte Ltd, its employees or directors is, by means of this ITQ, rendering professional advice or services. You use the content of this ITQ strictly at your own risk. You should not rely on all or any part of the content of this ITQ in making decisions to take action (including inaction) in regard to tax or other matters. Before making any decision or taking any action (including inaction) that may affect your tax position, your finances or your business, you should consult a qualified professional advisor. None of International Insights Pte Ltd, its employees or directors shall be responsible for any loss whatsoever sustained by any person who relies on the content of this ITQ.