GloBE Rules Series

ITQ G-

106

July 12, 2024

Question

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

For a particular balance sheet account, ACo chooses to track DTLs (for the purposes of the DTL recapture rule) by reference to an Aggregate DTL Category which consists of all the general ledger accounts which comprise the balance sheet account..

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

Year 1: 50

Year 2: 60

Year 3: 20

Year 4: (30)

Year 5: (20)

Year 6: 70

Year 7: 60

Year 8: (50)

Year 9: (80)

Year 10: 30

ACo does not qualify to use the FIFO methodology. It therefore uses the LIFO methodology.

Based on this limited information, what will be the impact on ACo'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 & 90.24 of Comm to Art. 4.4.4 and Example 4.4.4-3 in the June 2024 AG …

Outstanding Balance:

Y1: 50

Y2: 110

Y3: 130

Y4: 100

Y5: 80

Y6: 150

Y7: 210

Y8: 160

Y9: 80

Y10: 110

Maximum Justifiable Amount:

Y6: 100

Y7: 100

Y8: 30

Y9: 0

Y10: 30

Unjustified Balance:

Y6: 50

Y7: 110

Y8: 130

Y9: 80

Y10: 80

Unjustified Balance (yearly movement):

Y6: 50

Y7: 60

Y8: 20

Y9: (50)

Y10: 0

Impact on Top-up Tax computations:

Y6 (Current Fiscal Year, CFY) corresponds to Y1 (Tested Fiscal Year, TFY): 50 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): 60 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.
Y8 (CFY) corresponds to Y3 (TFY): 20 is treated as DTL recapture in Y3. If reduction in ACT causes increase in Y3 Top-up Tax, it will be treated as Additional Current Top-up Tax in Y8: Art. 5.4.
In Y9, 50 of recaptured DTLs is treated as reversed: Art. 4.4.2(b).

Do you agree?

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