GloBE Rules Series

ITQ G-

132

April 25, 2025

Question

ACo and BCo are sister subsidiaries in an MNE Group which is “within scope” of the GloBE rules.

ACo is formed in jurisdiction A, where it is treated as opaque for tax purposes.

BCo is formed in jurisdiction B, where it is treated as opaque for tax purposes.

ACo owns a 40% interest in CCo, which is formed in jurisdiction C. BCo owns the remaining 60% interest in CCo.

CCo is treated as opaque under the jurisdiction B tax law, but as transparent under the jurisdictions A and C tax laws.

CCo has Financial Accounting Net Income or Loss of 100, on which it incurs C tax of 20.

Q1: What will be the allocation of CCo’s FANIL of 100 and tax of 20?

Q2: Now assume that, under the jurisdiction B CFC rules, BCo incurs tax of 5 (after foreign tax credit for CCo tax) in respect of BCo’s interest in CCo. What will be the allocation of CCo’s FANIL of 100 and tax of 20, and BCo’s tax of 5? Please ignore: (i) Art. 4.3.3; (ii) Blended CFC Regime; and (iii) cross-crediting of FTCs.

Answer

CCo is a Flow-through Entity: Art. 10.2.1. It is a Tax Transparent Entity to the extent of ACo’s 40% interest (Art. 10.2.1(a)), and it is a Reverse Hybrid Entity to the extent of BCo’s 60% interest (Art. 10.2.1(b)).

Q1:

See para. 67, chapter 5, of June 2024 AG.

CCo’s FANIL of 100 will be allocated: 40 to ACo (Art. 3.5.1(b)), and 60 to CCo (Art. 3.5.1(c)).

CCo’s tax of 20 will be allocated: 8 to ACo (Art. 4.3.2(b)), and 12 to CCo.

Q2:

CCo’s FANIL of 100 will be allocated: 40 to ACo (Art. 3.5.1(b)), and 60 to CCo (Art. 3.5.1(c)).

CCo’s tax of 20 will be allocated: 8 to ACo (Art. 4.3.2(b)), and 12 to CCo.

BCo’s CFC tax of 5 will be allocated: 5 to CCo (Art. 4.3.2(c)). It will not be further allocated to ACo: see para. 68, chapter 5, of June 2024 AG.

ITQ Disclaimer

This International Tax Quiz (ITQ) contains general information only, and none of International Insights Pte Ltd, its employees or directors is, by means of this ITQ, rendering professional advice or services. You use the content of this ITQ strictly at your own risk. You should not rely on all or any part of the content of this ITQ in making decisions to take action (including inaction) in regard to tax or other matters. Before making any decision or taking any action (including inaction) that may affect your tax position, your finances or your business, you should consult a qualified professional advisor. None of International Insights Pte Ltd, its employees or directors shall be responsible for any loss whatsoever sustained by any person who relies on the content of this ITQ.