GloBE Rules Series

ITQ G-

124

February 7, 2025

Question

XCo, a company located in jurisdiction X, is a Constituent Entity in an MNE Group which is “within scope” of the GloBE rules.

YCo, a company located in jurisdiction Y, is also a Constituent Entity in the same MNE Group. YCo is the only Constituent Entity located in jurisdiction Y.

XCo operates as a “principal company” in a supply chain structure. YCo is a limited risk buy-sell distributor in jurisdiction Y. It buys goods from XCo and sells them to unrelated retailers in jurisdiction Y.

Jurisdiction Y has implemented Amount B, on a mandatory basis. Amount B is applied to YCo to determine its taxable profits in a particular year, for the purposes of jurisdiction Y corporate income tax (CIT).

Q1: Must the jurisdiction Y tax authorities accept the taxable profits as determined under Amount B, for the purposes of determining YCo’s GloBE Income?

Q2: Jurisdiction Y has implemented the UTPR. In the particular year, a jurisdiction Y UTPR liability arises for the MNE Group. Can the jurisdiction Y tax authorities impose that UTPR liability on YCo, despite the existence of Amount B?

Answer

OECD / IF’s Amount B report, para. 6: “The design of the simplified and streamlined approach [SSA] simplifies pricing of in-scope transactions by providing a solution that approximates an arm’s length outcome within the jurisdiction of the tested party. In jurisdictions that choose to apply the [SSA], such approach will be treated as providing an arm’s length outcome. In jurisdictions that do not choose to apply the [SSA], such approach will not be treated as providing an arm’s length outcome (including for the purposes of Article 9 of the MTC and by extension Article 25). The outcome determined under the [SSA] by a jurisdiction is non-binding on the counter-party jurisdiction.”

Thus, the SSA does not produce an arm’s length outcome – it “approximates an arm’s length outcome”. Nevertheless, in a jurisdiction which applies the SSA, “such approach will be treated as providing an arm’s length outcome”.

Q1: Must the jurisdiction Y tax authorities accept the taxable profits as determined under Amount B, for the purposes of determining YCo’s GloBE Income?

This depends on the jurisdiction Y tax law. It is possible that that law merely requires that Amount B be used for the purposes of the jurisdiction Y corporate income tax (CIT), with no reference to the GloBE rules. If that is the situation, then there does not appear to be any legal obstacle to the jurisdiction Y tax authorities ignoring Amount B when computing YCo’s GloBE Income – in particular, there is no statement in the Commentary to the GloBE model rules on the applicability of Amount B.

From a policy perspective, it is difficult to understand why the Commentary would not require Amount B to be used for GloBE purposes, if it is used for CIT purposes.

Q2: Amount B is relevant to determining the taxable profits of YCo for jurisdiction Y CIT purposes (and, possibly, YCo’s GloBE Income – see Q1). However, it does not place a cap on YCo’s other jurisdiction Y tax liabilities, including under the UTPR. Thus, the jurisdiction Y tax authorities can impose a UTPR liability on YCo, despite the existence of Amount B.

Do you agree?

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