GloBE Rules Series

ITQ G-

129

March 28, 2025

Question

An MNE Group which is “within scope” of the GloBE rules, includes 2 subsidiaries, ACo and BCo.

Situation 1: (a) ACo is incorporated and tax-resident in China (i.e., Mainland China); (b) BCo is incorporated in Hong Kong.

Situation 2:

(a) ACo is incorporated in State A of Country X, a federation of states; ACo is tax-resident in State A for State A CIT purposes;

(b) BCo is incorporated in State B of Country X; BCo is tax-resident in State B for State B CIT purposes. The federal government of Country X does not levy CIT.

Situation 3: Same as Situation 2, except that the federal government of Country X does levy CIT. However, both ACo and BCo are exempt from federal CIT.

Situation 4: Same as Situation 3, except that ACo and BCo both pay federal CIT (in addition to state CIT).

In each of these 4 situations, what is the relevant jurisdiction for the purposes of determining the Jurisdictional Top-up Tax?

Answer

Comm on Art. 10.3: “The term ‘jurisdiction’ is not defined in Article 10.1 or any other provision in the GloBE Rules. The approach that has been taken is to follow the definition of ‘Tax Jurisdiction’ used for CbCR, and thus a jurisdiction for purposes of the GloBE Rules means a State as well as a non-State jurisdiction which has fiscal autonomy.”

Although “jurisdiction” is not defined, location of an Entity in a jurisdiction is defined in Art. 10.3. To determine the Jurisdictional Top-up Tax in Art. 5.2, you need to identify the location of each Entity. [Cf.: the references to “implementing-jurisdiction” in the IIR and UTPR charging provisions (Arts. 2.1 & 2.4) – this is the jurisdiction enacting the GloBE rules.]

Situation 1: (a) ACo is located in China: Art. 10.3.1(a); (b) BCo is located in Hong Kong: Art. 10.3.1(b).

Situation 2: (a) ACo is located in State A of Country X: Art. 10.3.1(a); (b) BCo is located in State B of Country X: Art. 10.3.1(a).

Situation 3: (a) Based on Art. 10.3.1, ACo is located in both Country X and State A of Country X. Under Art. 10.3.4(b)(i), ACo should be located in State A of Country X only.

(b) Similar analysis for BCo: it should be located in State B of Country X only.

Situation 4: (a) & (b) Application of the tie-breaker tests in Art. 10.3.4(b) is required. The question does not provide sufficient information to determine the answer.

Do you agree?

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