Transitional CbCR Safe Harbour

De minimis test

Year-end transfer pricing adjustments not permitted to be made to Qualified Financial Statements

Para. 74.15, Safe Harbours and Penalty Relief report, as amended by December 2023 AG

“Covered Tax” definition in Art. 4.2.1

Extra-profit tax (EPT)

Comm on Art. 4.2.1: defines “tax” as “compulsory unrequited payment to General Government”

Meaning of “unrequited”

EPT reduces company’s other tax liabilities: is EPT “unrequited”?

Transitional CbCR Safe Harbour – de minimis test

Hybrid Arbitrage Arrangement

Paras. 74.25 to 74.31 of “Safe Harbours and Penalty Relief” report, added by December 2023 AG

Was loan entered into after 15 December 2022?

Meaning of “performance … differs” in para. 74.30(c)(ii)

Floating interest rate

QDMTT: amount of DMTT tax cannot be “scaled down” to reflect UPE’s Ownership Interest of less than 100% - i.e., DMTT tax must be either 100% or 0%, to “qualify” as QDMTT

Para. 118.10 of Comm to “QDMTT” definition in Art. 10.1.1 (added to Comm by Feb 2023 AG)

UTPR: amount of UTPR tax cannot be “scaled down” to reflect UPE’s Ownership Interest of less than 100%

Arts. 2.5 and 2.6

Transitional UTPR Safe Harbour

Corporate income tax rate of at least 20 percent

Federal and State taxes

Nominal rate, not effective rate

Deductibility of State income tax for Federal income tax purposes

Combined rate

Section 5.2 in July 2023 AG

Art. 8.2.1

QDMTT Safe Harbour 

“Standards for a QDMTT Safe Harbour” in chapter 5 of July 2023 AG 

QDMTT Accounting Standard: QDMTT is computed based on local financial accounting standard

Consistency Standard: QDMTT imposed on 100% of Jurisdictional Top-up Tax, notwithstanding that UPE’s “Ownership Interest” is 80%

Para. 46, chapter 5 of July 2023 AG

Transitional CbCR Safe Harbour

Qualified CbC Report

Inclusion of purchase price accounting (PPA) adjustments

Consistent reporting condition: para. 17.4 of Safe Harbours and Penalty Relief report, as amended by December 2023 AG

Inclusion of deferred tax expenses related to PPA adjustments

Partnership – definitions of “Entity” (Art. 10.1.1), “Flow-through Entity” (Art. 10.2.1), “Tax Transparent Entity” (Art. 10.2.1(a)), “stateless Entity” (Art. 10.3.2(b)), “Constituent Entity” (Art. 1.3.1(a))

Permanent Establishment – para. (a) of definition in Art. 10.1.1

Location of PE (Art. 10.3.3(a))

PE can have payroll carve-out (Art. 5.3.3) and tangible asset carve-out (Art. 5.3.4)

Allocation of FANIL to PE (Arts. 3.4 & 3.5.1(a))

Allocation of Adjusted Covered Taxes to PE (Art. 4.3.2(a))

SBIE computation

IIR tax imposed on UPE and POPE

Art. 2.1.6

Top-up Tax of Constituent Entity located in same jurisdiction as UPE or POPE, respectively

Top-up Tax of UPE or POPE, respectively

EU GloBE Directive, Arts. 8(2), 9(3), and 10

Possible drafting glitch in Art. 10, EU GloBE Directive – cf. Art. 2.3, GloBE model rules

US Notice 2023-80: US foreign tax credits for foreign IIR and QDMTT taxes

Art. 4.3.2(c)

“final top-up tax” (phrase used in Notice 2023-80)

Does DMTT qualify as a QDMTT?

“Scaling down” of DMTT amount, to reflect MNE Group’s less than 100% Ownership Interest

Para. 118.10 of Comm to “QDMTT” definition in Art. 10.1.1 (added to Comm by Feb 2023 AG)

Jurisdictional Top-up Tax - Art. 5.2.3

QDMTT – not applicable to (i) MNE Groups which fall outside scope of GloBE rules, and (ii) 100% domestic groups

Art. 24(5) of double tax treaty: non-discrimination

Does QDMTT breach Art. 24(5)?