GloBE Rules Series

ITQ G-

138

July 18, 2025

Question

XCo, a company located in jurisdiction X, is the UPE of an MNE Group which is “within scope” of the GloBE rules. Jurisdiction X has not implemented the GloBE rules.

XCo owns 100% of the shares in YCo 1, a company located in jurisdiction Y. XCo also owns 80% of the shares in YCo 2, another company located in jurisdiction Y. The remaining 20% of the shares in YCo 2 are owned by YCo 1. Jurisdiction Y has implemented the GloBE rules (IIR, UTPR, and QDMTT).

YCo 2 owns 90% of the shares in ZCo, a company located in jurisdiction Z. The other 10% of the shares in ZCo are owned by YCo 1. Jurisdiction Z has not implemented a QDMTT.

ZCo is the only Constituent Entity located in jurisdiction Z. 100 of top-up tax exists in regard to jurisdiction Z.

How much top-up tax will each of XCo, YCo 1, and YCo 2 be required to pay?

Answer

IIR tax will not be imposed on XCo, because jurisdiction X has not implemented the GloBE rules.

Each of YCo 1 and YCo 2 is an Intermediate Parent Entity (Art. 10.1.1 definition).

YCo 1: Subject to IIR tax under Art. 2.1.2. Its “Allocable Share” of ZCo’s top-up tax is, prima facie, 28% (10% due to its direct ownership of ZCo, plus 18% due to its indirect ownership of ZCo through YCo 2 – i.e., 20% x 90%).

YCo 2: Subject to IIR tax under Art. 2.1.2. The exclusion in Art. 2.1.3(b) does not apply, because YCo 1 does not own a Controlling Interest in YCo 2. Its “Allocable Share” of ZCo’s top-up tax is, prima facie, 90%.

Prima facie, there is double taxation: 28% + 90% = 118%.

However, double tax is avoided by Arts. 2.3.1 & 2.3.2: YCo 1’s Allocable Share is reduced to 10%.

Final answer: XCo: nil; YCo 1: 10; and YCO 2: 90.

Do you agree?

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