GloBE Rules Series

ITQ G-

107

July 19, 2024

Question

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

For a particular balance sheet account, XCo 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.

XCo has pre-Transition Year DTLs of 150 in the Aggregate DTL Category.

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

Year 1: 70

Year 2: 50

Year 3: (30)

Year 4: (40)

Year 5: 60

Year 6: 50

Year 7: (40)

Year 8: (60)

Year 9: 50

Year 10: 70

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 Short-term DTLs.

Answer

This answer is based on paras. 90.30 & 90.31 of Comm to Art. 4.4.4 and Example 4.4.4-4 in the June 2024 AG …

Reversals allocated to pre-Transition Year DTLs (FIFO methodology):

Y1: 0

Y2: 0

Y3: (30)

Y4: (40)

Y5: 0

Y6: 0

Y7: (40)

Y8: (40)

Y9: 0

Y10: 0

Net DTL movement (after allocation to pre-Transition Year DTLs):

Y1: 70

Y2: 50

Y3: 0

Y4: 0

Y5: 60

Y6: 50

Y7: 0

Y8: (20)

Y9: 50

Y10: 70

Outstanding Balance:

Y1: 70

Y2: 120

Y3: 120

Y4: 120

Y5: 180

Y6: 230

Y7: 230

Y8: 210

Y9: 260

Y10: 330

Maximum Justifiable Amount:

Y6: 160

Y7: 110

Y8: 110

Y9: 160

Y10: 170

Unjustified Balance:

Y6: 70

Y7: 120

Y8: 100

Y9: 100

Y10: 160

Unjustified Balance (yearly movement):

Y6: 70

Y7: 50

Y8: (20)

Y9: 0

Y10: 60

Impact on Top-up Tax computations:

Y6 (Current Fiscal Year, CFY) corresponds to Y1 (Tested Fiscal Year, TFY): 70 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): 50 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.
In Y8, 20 of recaptured DTLs is treated as reversed: Art. 4.4.2(b). This will increase ACT by 20 in Y8, which might cause a reduction in Top-up Tax in Y8.
Y10 (CFY) corresponds to Y5 (TFY): 60 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.

Do you agree?

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