<< Go back to overview

Next article>>

Article 1.2 MNE Group and Group

Article 1.2 defines the terms “MNE Group” and “Group” for the purposes of the GloBE Rules. These terms, which are used to determine the scope of the GloBE Rules under Article 1.1, perform two key functions. Firstly, they restrict the GloBE Rules to those Groups or Entities with foreign subsidiaries or branches. Second they define the degree of common ownership and control required for two or more entities to be members of the same Group.

As described in the Commentary on Article 1.1, the Constituent Entities of a Group will not be subject to the GloBE Rules unless they are members of an MNE Group. Article 1.2.1 sets out the definition of an MNE Group. There are two elements to this definition:

a) Whether two or more Entities form a Group is based on an accounting consolidation test. This consolidation test is determined based on the Consolidated Financial Statements prepared by the UPE. Subparagraph (d) of the definition of Consolidated Financial Statements in Article 10.1 includes a deeming provision for those UPEs that do not prepare Consolidated Financial Statements. This provision requires the use of the financial statements that would have been prepared if the UPE had been required to prepare such statements in accordance with an Authorised Financial Accounting Standard that is either an Acceptable Financial Accounting Standard or another financial accounting standard that is adjusted to prevent any Material Competitive Distortions.

b) A Group will be an MNE Group if it has one or more Entities or PEs located in a jurisdiction other than the UPE jurisdiction.

19. The extended definition of Group in Article 1.2.3 ensures that the GloBE Rules also apply to a standalone Entity located in a jurisdiction that has one or more PEs located in another jurisdiction.

Article 1.2. MNE Group and Group

1.2.1 An MNE Group means any Group that includes at least one Entity or Permanent Establishment that is not located in the jurisdiction of the Ultimate Parent Entity.

1.2.2. A Group means a collection of Entities that are related through ownership or control such that the assets, liabilities, income, expenses and cash flows of those Entities: (a) are included in the Consolidated Financial Statements of the Ultimate Parent Entity; or (b) are excluded from the Consolidated Financial Statements of the Ultimate Parent Entity solely on size or materiality grounds, or on the grounds that the Entity is held for sale.

1.2.3. A Group also means an Entity that is located in one jurisdiction and has one or more Permanent Establishments located in other jurisdictions provided that the Entity is not a part of another Group described in Article 1.2.2.

Article 1.2.1

20. Article 1.2.1 requires a UPE of the Group to have, directly or indirectly, at least one foreign subsidiary or PE before the Group will be considered an MNE Group. A single subsidiary or PE as defined by Article 10.1 (even one that does not earn income) located in a jurisdiction other than the one where the UPE is located is sufficient to bring a Group within the definition of an MNE Group.

Article 1.2.2

21. Article 1.2.2 defines a Group based on an accounting consolidation test. A Group is comprised of Entities (including arrangements such as partnerships or trusts that prepare separate financial accounts) that are related through ownership or control and meet either of the requirements set out in paragraph (a) or (b) of Article 1.2.2. This definition is used for purposes of defining a Constituent Entity in Article 1.3. 22. Paragraph (a) refers to a collection of Entities that are included in the Consolidated Financial Statements of the UPE. This means that the assets, liabilities, income, expenses, and cash flows (i.e. the financial results) of the Entity (including the ones of its PEs) are consolidated on a line-by-line basis in the Consolidated Financial Statements that the UPE prepares for the MNE Group. If no consolidated accounts exist, a collection of Entities would still be considered a Group if these Entities would have been so consolidated if an Entity were required to prepare such accounts with respect to the Entities it controls because the definition of term “Consolidated Financial Statements” in Article 10.1 also includes a “deemed consolidation test” in paragraph (d) which considers these Entities consolidating together and therefore, forming part of the same Group. 23. Whether an Entity is part of a Group depends on whether it meets the definition of an “Entity” under Article 10.1 and the requirements set out in paragraph (a). For example, a joint operation (as defined by IFRS (IFRS Foundation, 2022[2])) could be a separate Entity of the Group provided that it meets the definition of an Entity (e.g., partnership) such that the portion of its assets, income, expenses, cash flows and liabilities belonging to the joint operators that are other Entities of the Group is included in the Consolidated Financial Statements on a line-by-line basis. Therefore, Entities reported under the pro rata or proportional consolidation method are Constituent Entities of the Group. In these cases, the portion of the Entity’s assets, income, expenses, cash flows and liabilities that are reflected in the Consolidated Financial Statements are taken into account for purposes of the GloBE Rules (e.g., the consolidated revenue threshold in Article 1.1 only takes into account the amount of the revenue of the Entity that is reflected in Consolidated Financial Statements).

24. Paragraph (b) states that a Group is also comprised of Entities that are not consolidated on a lineby-line basis because they are subject to a special reporting treatment under an Acceptable Financial Accounting Standard on the grounds that the Entity is held for sale, or is excluded from consolidation based on size or materiality grounds. This type of Entity is also treated as part of the Group as long as it remains sufficiently within the control of the UPE to fall within the general consolidation requirements of the relevant Acceptable Financial Accounting Standard.

24.1 See Commentary to the definition of UPE in Article 1.4.1 in the case of Entities owned by a sovereign wealth fund that qualifies as a Governmental Entity.

Article 1.2.3

25. In order to ensure MNE Groups that meet the consolidated revenue threshold and engage in crossborder operations through PEs rather than subsidiaries are also subject to the GloBE Rules, Article 1.2.3 provides a supplementary definition of “Group”. The definition provides that a standalone Entity, which otherwise is not a member of a Group as defined in Article 1.2.2, but has one or more PEs located in other jurisdictions, will be treated as a Group for GloBE purposes. Thus, in combination with Article 1.2.1, an Entity and its foreign PE will meet the definition of Group and MNE Group.

26. Article 1.2.3 will not apply where the Entity only has a stateless PE in accordance with paragraph (d) of the definition in Article 10.1 and Article 10.3.3(d) because such a PE is not recognised under the laws of any other jurisdiction. This narrow situation only occurs where a standalone Entity has a PE as defined by paragraph (d) of the definition of Permanent Establishment in Article 10.1.

No examples have been published by the OECD regarding this article.

As part of the Agreed Administrative Guidance from 2 February 2023 a reference was made regarding the “sovereign wealth funds” that qualifies as a governmental entity to the commentaries under point 24.1.

Country Profile – Japan

|0 Comments

Lorem ipsum dolor sit amet, consectetur adipisicing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Ut enim ad minim veniam, quis nostrud exercitation ullamco laboris nisi.

Model Rules – QDMTT and UTPR Safe Harbours

|0 Comments

QDMTT and UTPR Safe Harbours QDMTT Safe Harbour 1. A Qualified Domestic Minimum Top-up Tax (QDMTT) is a domestic minimum tax imposed by a jurisdiction on those Constituent Entities of an MNE Group [...]

Introduction to the GloBE Rules – OECD Commentary

|0 Comments

Introduction to the GloBE Rules - OECD Commentary 1. The Global Base Erosion rules (GloBE Rules) have been developed as part of the solution for addressing the tax challenges of the digital economy. [...]

Model Rules – Globe Information Return

|0 Comments

<< Go back to overview Next article>> Globe Information Return (GIR) The GloBE Information Return (GIR) contains the information a tax administration needs to perform an appropriate risk assessment [...]

Model Rules – Transitional Penalty Relief

|0 Comments

<< Go back to overview Next article>> Transitional Penalty Relief The penalty relief described in this Chapter is designed to provide transitional relief for MNE groups in the initial [...]

Model Rules – Permanent Safe Harbour

|0 Comments

<< Go back to overview Next article>> Permanent Safe Harbour Where an MNE’s operations in a jurisdiction do not meet the requirements of a transitional safe harbour, they may [...]