GloBE Rules Series

ITQ G-

134

May 9, 2025

Question

ACo (located in jurisdiction A) owns 100% of BCo (located in jurisdiction B).

The jurisdiction A corporate income tax (CIT) treats ACo as opaque.

BCo is treated as transparent for the purposes of the jurisdiction A CIT, but it is treated as opaque for the purposes of the jurisdiction B CIT.

BCo owns 100% of CCo, which is formed (and has a place of business) in jurisdiction C.

CCo is treated as transparent for the purposes of both the jurisdiction A and the jurisdiction B CITs.

Jurisdiction C does not have a CIT.

CCo has a Financial Accounting Net Income or Loss of 100.

BCo pays 10 of jurisdiction B CIT on CCo’s FANIL.

ACo pays 7 of jurisdiction A CIT (after a credit for the jurisdiction B CIT) on CCo’s FANIL.

What will be the allocation of CCo’s FANIL of 100, BCo’s CIT of 10, and ACo’s CIT of 7?

Please ignore Art. 4.3.3.

Answer

CCo is not a “Flow-through Entity”, as defined in Art. 10.2.1, because the jurisdiction where it was created does not have a CIT (and therefore, CCo is not fiscally transparent in that jurisdiction): see para. 160 of Comm to Art. 10.2.2. As CCo is not a “Flow-through Entity” under Art. 10.2.1, it cannot be a “Tax Transparent Entity” under Art. 10.2.1(a).

Also, CCo is not deemed to be a “Flow-through Entity” or a “Tax Transparent Entity” under Art. 10.2.4, because it does not satisfy para. (b): CCo does have a place of business in jurisdiction C.

CCo is a “Hybrid Entity”, as defined in Art. 10.2.5: see para. 169 of Comm to Art. 10.2.5.

CCo’s FANIL of 100 stays with CCo. As CCo is not a “Tax Transparent Entity”, Art. 3.5.1(b) does not apply.

Both ACo’s tax of 7 and BCo’s tax of 10 will be allocated to CCo, under Art. 4.3.2(d): see paras. 59 to 59.3 of Comm to Art. 4.3.2(d).

Do you agree?

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