GloBE Rules Series

ITQ G-

160

May 22, 2026

Question

XCo, a company located in jurisdiction X, is a Constituent Entity in an MNE Group which is “within scope” of the GloBE rules.

YCo, a company located in jurisdiction Y, is also a Constituent Entity in the MNE Group.

In year 1, XCo sells goods (i.e., inventory) to YCo, for a total consideration of $1 million (which is recorded as the price in XCo’s and YCo’s financial statements). $1 million is above XCo’s cost of the goods.

In its jurisdiction X corporate income tax return for year 1 (which is filed in year 2), XCo self-assesses the arm’s length total consideration for the goods as $1.5 million. XCo therefore increases its taxable income (as disclosed in its return) by $0.5 million. The additional jurisdiction X corporate income tax on that $0.5 million is $0.15 million.

In its jurisdiction Y corporate income tax return for year 1 (which is filed in year 2), YCo reports the total consideration for the purchase of the goods as $1 million. The jurisdiction Y corporate income tax rate is 30%.

What impact will these facts have on XCo’s and YCo’s Simplified Income and Simplified Taxes, for each of year 1 and year 2, for the purposes of the Simplified ETR Safe Harbour?

Answer

See section 5.2.1 (paras. 158 to 161) in chapter 2 of the Side-by-Side Package.

Assuming a Five-Year Election (see para. 161) is not validly made …

Year 1: XCo: no impact.
Year 1: YCo: no impact.

Year 2: XCo: (a) Simplified Income: $0.5m increase; (b) Simplified Taxes: $0.15m increase.
Year 2: YCo: (a) Simplified Income: $0.5m decrease; (b) Simplified Taxes: ???.

The SbS Package (para. 160) does not state that YCo (the counterparty) must reduce its Covered Taxes in Year 2 to correspond to the reduction in its Simplified Income. If no reduction is made, YCo’s ETR in Year 2 will be increased. What do you think? Should YCo’s Simplified Taxes in Year 2 be reduced or not?

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