GloBE Rules Series

ITQ G-

143

September 12, 2025

Question

XCo, located in jurisdiction X, is the UPE of an MNE Group.

XCo directly or indirectly owns Controlling Interests in two subsidiary companies: YCo and ZCo, respectively located in jurisdictions Y and Z.

XCo, YCo and ZCo are the only Constituent Entities in the MNE Group.

XCo has a direct 60% Ownership Interest in YCo and third parties own the remaining 40%.

XCo has a direct 50% Ownership Interest in ZCo and YCo directly owns the other 50%.

The Ownership Interests of YCo and ZCo are ordinary common shares that carry an equal right to profit distributions and capital.

For the relevant year, ZCo has Top-up Tax of $1 million.

Based on these facts, what is the IIR tax liability of: (1) XCo; and (2) YCo?

Answer

YCo is a POPE (Art. 10.1.1 definition). It is not an Intermediate Parent Entity (Art. 10.1.1 definition).

YCo will be subject to an IIR tax liability equal to its Allocable Share of ZCo’s Top-up Tax (Art. 2.1.4).

YCo’s Inclusion Ratio for ZCo is 50% (Art. 2.2.2 & 2.2.3).

Therefore, YCo’s Allocable Share of ZCo’s Top-up Tax is: $1 million x 50% = $500,000.

XCo will also be subject to an IIR tax liability equal to its Allocable Share of ZCo’s Top-up Tax (Art. 2.1.1).

XCo’s Inclusion Ratio for ZCo is 50% + (60% x 50%) = 80% (Art. 2.2.2 & 2.2.3).

Therefore, prima facie, XCo’s Allocable Share of ZCo’s Top-up Tax is $1 million x 80% = $800,000.

However, to avoid the double counting, Art. 2.3.1 & 2.3.2 reduce XCo’s Allocable Share by $300,000.

Thus, final answer: XCo: $500,000; YCo: $500,000.

Do you agree?

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