GloBE Rules Series

ITQ G-

142

August 22, 2025

Question

YCo is a company incorporated in jurisdiction Y. YCo is treated as fiscally transparent under the tax laws of jurisdiction Y, but instead as a taxable entity under the tax laws of jurisdiction X.

XCo, located in jurisdiction X, is the UPE of an MNE Group. XCo owns 60% of the Ownership Interests of YCo. The remaining 40% of the Ownership Interests of YCo are owned by non-Group Entities.

What is XCo’s Allocable Share of YCo’s Top-up Tax?

Answer

A short, but tricky, question …

YCo is a Flow-through Entity and a Reverse Hybrid Entity (Art. 10.2.1).

The first step is to allocate 40% of YCo’s Financial Accounting Net Income or Loss (FANIL) to the non-Group Entities: Art. 3.5.3.

After that step, the remaining balance of YCo’s FANIL is allocated to it (YCo): Art. 3.5.1(c). Similarly, YCo’s GloBE Income for the purposes of the allocation of Top-up Tax in Art. 2.2 “shall not include any income allocated, pursuant to Article 3.5.3, to an owner that is not a Group Entity”: Art. 2.2.4.

Therefore, XCo’s Inclusion Ratio in Art. 2.2.2 will be 100% (not 60%).

And therefore, XCo’s Allocable Share of YCo’s Top-up Tax will be 100%.

Do you agree?

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