GloBE Rules Series

ITQ G-

135

May 23, 2025

Question

XCo (located in jurisdiction X) owns 100% of YCo (located in jurisdiction Y).

The jurisdiction X corporate income tax (CIT) treats XCo as opaque.

YCo is treated as transparent for the purposes of the jurisdiction X CIT, but it is treated as opaque for the purposes of the jurisdiction Y CIT.

YCo owns 100% of ZCo, which is formed in jurisdiction Z.

ZCo is treated as opaque for jurisdiction Y CIT purposes, but ZCo is treated as transparent for the purposes of both the jurisdiction X CIT and the jurisdiction Z CIT.

ZCo derives a Financial Accounting Net Income or Loss (FANIL) of 100.

XCo pays 10 of jurisdiction X CIT on ZCo's 100 FANIL.

YCo pays 5 of jurisdiction Z CIT on ZCo's FANIL.

ZCo does not pay any jurisdiction Z CIT on its (ZCo's) 100 FANIL.

What will be the allocation of ZCo's FANIL of 100, YCo's CIT of 5, and XCo's CIT of 10? Please answer this question (1) under the GloBE rules, and (2) under jurisdiction Z’s QDMTT.

Please assume that YCo does not have a PE (as defined in the GloBE rules) in jurisdiction Z.

Answer

YCo is the Reference Entity in regard to ZCo, because it is the closest Constituent Entity-owner to ZCo that is not a Flow-through Entity: para.154.1 of Comm to Art. 10.2.1.

As jurisdiction Y’s CIT treats ZCo as opaque, ZCo’s FANIL will not be subject to tax in jurisdiction Y. ZCo would therefore be treated as a Reverse Hybrid Entity: Art. 10.2.1(b).

ZCo’s FANIL remains with ZCo: Art. 3.5.1(c).

1. GloBE rules:

For the purposes of the GloBE rules, both XCo’s tax and YCo’s tax will be allocated to ZCo, under Art. 4.3.2(d).

Note that para. 59 of the Comm to Art. 4.3.2(d) states that the provision applies to both Hybrid Entities and Reverse Hybrid Entities.

2. Jurisdiction Z’s QDMTT:

For the purposes of jurisdiction Z’s QDMTT, XCo’s tax will not be allocated to ZCo, but YCo’s tax will be allocated to ZCo: para. 118.30 of Comm to definition of QDMTT in Art. 10.1.

3. Final answer:

FANIL of 100 retained by ZCo (for both GloBE rules and QDMTT).

For GloBE rules: both XCo tax and YCo tax allocated to ZCo.

For QDMTT: YCo tax allocated to ZCo.

Do you agree?

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