GloBE Rules Series

ITQ G-

105

July 5, 2024

Question

XCo is a Constituent Entity in an MNE Group which is "within scope" of the GloBE rules.

For its "intangible assets" balance sheet account, XCo chooses to track DTLs (for the purposes of the DTL recapture rule) by reference to an Aggregate DTL Category which comprises all of the "intangible assets" general ledger accounts.

The net DTL movement in this Aggregate DTL Category for each of 10 years is:

Year 1: 130

Year 2: 120

Year 3: (40)

Year 4: 0

Year 5: 80

Year 6: 90

Year 7: (100)

Year 8: 50

Year 9: 70

Year 10: 30

XCo qualifies to use the FIFO methodology, and it chooses to do so.

Based on this limited information, what will be the impact on XCo's Top-up Tax computations for years 1 through 10?

Please ignore issues which might arise with: (1) Short-term DTLs; and (2) Transition Year.

Answer

This answer is based on paras. 90.22 & 90.23 of Comm to Art. 4.4.4 and Example 4.4.4-2 in the June 2024 AG …

Outstanding Balance:

Y1: 130.

Y2: 130 + 120 = 250.

Y3: 250 + (40) = 210.

Y4: 210 + 0 = 210.

Y5: 210 + 80 = 290.

Y6: 290 + 90 = 380.

Y7: 380 + (100) = 280.

Y8: 280 + 50 = 330.

Y9: 330 + 70 = 400.

Y10: 400 + 30 = 430.

Maximum Justifiable Amount:

Y6: 120 + 80 + 90 = 290.

Y7: 80 + 90 = 170.

Y8: 80 + 90 + 50 = 220.

Y9: 80 + 90 + 50 + 70 = 290.

Y10: 90 + 50 + 70 + 30 = 240.

Unjustified Balance:

Y6: 380 - 290 = 90.

Y7: 280 - 170 = 110.

Y8: 330 - 220 = 110.

Y9: 400 - 290 = 110.

Y10: 430 - 240 = 190.

Unjustified Balance (yearly movement):

Y6: 90.

Y7: 20.

Y8: 0.

Y9: 0.

Y10: 80.

Impact on Top-up Tax computations:

Y6 (Current Fiscal Year, CFY) corresponds to Y1 (Tested Fiscal Year, TFY): 90 is treated as DTL recapture in Y1. If reduction in Adjusted Covered Taxes (ACT) causes increase in Y1 Top-up Tax, it will be treated as Additional Current Top-up Tax in Y6: Art. 5.4.
Y7 (CFY) corresponds to Y2 (TFY): 20 is treated as DTL recapture in Y2. If reduction in ACT causes increase in Y2 Top-up Tax, it will be treated as Additional Current Top-up Tax in Y7: Art. 5.4.
Y10 (CFY) corresponds to Y5 (TFY): 80 is treated as DTL recapture in Y5. If reduction in ACT causes increase in Y5 Top-up Tax, it will be treated as Additional Current Top-up Tax in Y10: Art. 5.4.
Based on the facts, there is no reversal of recaptured DTLs (Art. 4.4.2(b)).

Do you agree?

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