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Article 1.3 Constituent Entity

The term Constituent Entity defines those Group Entities that are subject to the GloBE Rules. For example, a Group Entity must be a Constituent Entity before it can be treated as an LTCE and subject to charge under the IIR or UTPR, under Chapters 2 to 5 of the rules.

Article 1.3. Constituent Entity

1.3.1. A Constituent Entity is:

(a) any Entity that is included in a Group; and

(b) any Permanent Establishment of a Main Entity that is within paragraph (a).

1.3.2. A Permanent Establishment that is a Constituent Entity under paragraph (b) above shall be treated as separate from the Main Entity and any other Permanent Establishment of that Main Entity.

1.3.3. A Constituent Entity does not include an Entity that is an Excluded Entity.

Article 1.3.1

28. The first type of Constituent Entity is defined by Article 1.3.1(a) as any Entity that is a member of a Group. Therefore, each of the Entities of the Group as determined in Article 1.2.2 will be a Constituent Entity, unless it is an Excluded Entity under Article 1.5.

29. The second type of Constituent Entity is described in paragraph (b) of Article 1.3.1. Under this paragraph, a PE, as defined in Article 10.1, of a Main Entity that is itself a Constituent Entity is treated as a separate Constituent Entity. This paragraph applies to any of the four types of PEs described in the definition of Permanent Establishment in Article 10.1.

Article 1.3.2

30. Article 1.3.2 clarifies that a PE, that is a Constituent Entity pursuant to Article 1.3.1(b) shall be treated as a separate Constituent Entity from the Main Entity and any other PEs of such Entity. The definition of PE is set out in Article 10.1, which is based on the identification of a PE as recognised for tax purposes. The need to distinguish the separate business operations undertaken in the foreign PE is essential for the jurisdictional blending calculations under Chapter 5. It ensures that the income earned through PEs in another jurisdiction and the tax imposed on that income is not blended with the tax and income of the Main Entity or another PE in a different jurisdiction. In that sense, it ensures parity in the treatment of foreign subsidiaries and PEs of the MNE Group.

Article 1.3.3

31. Article 1.3.3 provides that a Constituent Entity does not include an Entity that is an Excluded Entity. As discussed further below, Excluded Entities are therefore outside the GloBE Rules.

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

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