GloBE Rules Series

ITQ G-

147

October 24, 2025

Question

X Co is a Constituent Entity of an MNE Group which is “within scope” of the GloBE rules.

Y Co is unrelated to X Co.

Y Co has 100,000 common shares on issue that carry an equal right to profit distributions and capital. X Co acquires 2,000 common shares in Y Co on 1 July in Year 1, X Co acquires an additional 1,000 common shares in Y Co on 31 March in Year 2, and X Co sells 400 common shares in Y Co on 30 September in Year 2. Y Co has only one class of shares and distributes a dividend of EUR 0.10 per share on 31 December of Year 2.

X Co is a tax resident of jurisdiction X. Jurisdiction X corporate income tax law applies a “first in, first out” rule in determining which shares from a portfolio are sold.

What is the treatment, under the GloBE rules, of the dividend received by X Co?

Answer

XCo’s shareholding in YCo is a “Portfolio Shareholding” (definition in Art. 10.1.1).

The key issue is the ordering rule to apply in regard to the 400 shares in YCo which were sold by XCo on 30 September in Year 2: are they considered to come from 2,000 shares acquired on 1 July in Year 1, or from the 1,000 shares acquired on 31 March in Year 2, or proportionately from the 2 groups? We are told that the jurisdiction X corporate income tax law applies a “first in, first out” rule in determining which shares from a portfolio are sold.

However, that rule under the jurisdiction X CIT law is irrelevant. The Commentary to Art. 3.2.1 says: “[The] disposition of an Ownership Interest in a particular class of shares is deemed to be a disposition of the most recently acquired Ownership Interests of the same class that were acquired the last, for simplification purposes.”

Thus, the 400 shares are deemed to come from the 1,000 shares acquired on 31 March in Year 2.

Therefore, at the date of the dividend distribution (31 December in Year 2), XCo has held 600 shares in YCo for less than one year. Thus, those 600 shares qualify as a “Short-term Portfolio Shareholding” (definition in Art. 10.1.1). The remaining 2,000 shares (which have been held for more than one year) do not so qualify.

Therefore, the dividend received by XCo on the 2,000 shares qualifies as “Excluded Dividends” (definition in Art. 10.1.1). The dividend on the remaining 600 shares does not so qualify.

Therefore, the dividend received by XCo on the 2,000 shares (i.e., EUR 0.10 x 2,000 = EUR 200) is excluded from XCo’s GloBE Income (Art. 3.2.1(b)). The remaining dividend (i.e., EUR 0.10 x 600 = EUR 60) will be taken into account in computing XCo’s GloBE Income.

Do you agree?

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