GloBE Rules Series

ITQ G-

108

July 26, 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.

ACo has pre-Transition Year DTLs of 100 in the Aggregate DTL Category.

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

Year 1: 50

Year 2: 80

Year 3: (50)

Year 4: (10)

Year 5: 60

Year 6: 50

Year 7: 30

Year 8: (40)

Year 9: 60

Year 10: 50

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

ACo makes an Unclaimed Accruals Annual Election, covering all DTLs in the Aggregate DTL Category, in each of years 2 and 5.

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 Short-term DTLs.

Answer

This answer is based on paras. 112.1 to 112.6 of Comm to Art. 4.4.7 and Examples 4.4.7-1 to 3 in the June 2024 AG …

Reversals allocated to pre-Transition Year DTLs:

Y3: (50)
Y4: (10)
Y6: (40)

Net DTL movement (after allocation to pre-Transition Year DTLs):
Y1: 50
Y2: 80
Y3: 0
Y4: 0
Y5: 60
Y6: (10)
Y7: 30
Y8: (40)
Y8: 60
Y10: 50

Exclusion of unclaimed DTL accruals:
Y2: (80)
Y5: (60)

Net DTL movement (after allocation to pre-Transition Year DTLs and after exclusion of unclaimed DTL accruals):
Y1: 50
Y2: 0
Y3: 0
Y4: 0
Y5: 0
Y6: (10)
Y7: 30
Y8: (40)
Y9: 60
Y10: 50

Outstanding Balance:
Y1: 50
Y2: 50
Y3: 50
Y4: 50
Y5: 50
Y6: 40
Y7: 70
Y8: 30
Y9: 90
Y10: 140

Maximum Justifiable Amount:
Y6: 0
Y7: 30
Y8: 30
Y9: 90
Y10: 140

Unjustified Balance:
Y6: 40
Y7: 40
Y8: 0
Y9: 0
Y10: 0

Unjustified Balance (yearly movement):
Y6: 40
Y7: 0
Y8: (40)
Y9: 0
Y10: 0

Impact on Top-up Tax computations:

Y6 (Current Fiscal Year) corresponds to Y1 (Tested Fiscal Year): 40 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.

Y8: reversal of 40 of Y2 unclaimed DTL accrual of 80: if the 40 is reflected in current tax expense in Y8, the Y8 ACT will increase by 40.

Do you agree?

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