UPE of a Group as defined by Article 1.2.2

34. Paragraph (a) defines the term UPE in the case of a Group that is composed of at least two Entities in accordance with Article 1.2.2. To be a UPE of the Group, the Entity must comply with two requirements. The first condition is set out in subparagraph (i), which states that the UPE is an Entity that directly or indirectly owns a Controlling Interest in another Entity. The definition of Controlling Interest in Article 10.1 uses a consolidation test (including a deemed consolidation test) to determine whether an Entity owns a Controlling Interest in another Entity. Therefore, the requirement in subparagraph (i) is met if an Entity is required to consolidate the assets, liabilities, income, expenses and cash flows of another Entity on a lineby-line basis in accordance with an Acceptable Financial Accounting Standard or if it would have been so required if the first-mentioned Entity had prepared Consolidated Financial 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.

35. The second requirement is set in subparagraph (ii). It states that the Controlling Interests of the Entity should not be owned directly or indirectly by another Entity that is described in subparagraph (i). Therefore, it disqualifies an Entity from being the UPE of a Group if the Controlling Interests in that Entity are held by another Entity. Stated differently, an Entity is not considered the UPE of a Group if there is another Entity higher in the ownership chain that is required, or that would have been required, to consolidate the first-mentioned Entity on a line-by-line basis.

UPE of a Group as defined by Article 1.2.3

36. The second type of UPE is described in Article 1.4.1(b). This paragraph provides that in those cases where the Group is a single Entity with one or more foreign PEs, then the Main Entity (as defined in Article 10.1) is the UPE. As explained in the Commentary to Article 1.2.3, this extended definition of UPE is necessary to ensure that a domestic Entity that engages in cross-border operations through PEs is subject to the GloBE Rules.

Sovereign wealth fund that qualifies as Governmental Entity is not a UPE

36.1 Governmental Entities are Excluded Entities under the GloBE Rules. As explained in the Commentary to the definition of Governmental Entity, they are excluded from the charge to GloBE tax because they are sovereign entities that are not typically subject to tax in their own jurisdiction and often benefit from exclusions from taxation under foreign law or tax treaties. The term Governmental Entity includes an Entity that is wholly-owned directly or indirectly by a government and that has the principal purpose of managing or investing that government’s or jurisdiction’s assets through the making and holding of investments, asset management, and related investment activities for the government’s or jurisdiction’s assets, so long as it does not carry on a trade or business. To qualify as a Governmental Entity, such Entities must also be accountable to the government, provide annual information reporting to the government, and its assets must vest with the government upon dissolution and any distributions of earnings must be made to the government. Governmental Entities of this nature are typically referred to as sovereign wealth funds. These conditions ensure that Governmental Entities are appropriately treated like the government and excluded from the charge to tax under the GloBE Rules.

36.2 Generally, an Excluded Entity can be the UPE of an MNE Group if it holds a Controlling Interest in another Entity. Whether an interest is a Controlling Interest depends on whether the holder would be required to consolidate the assets, liabilities, income, expenses and cash flows (the financial results) of the Entity on a line-by-line basis under an Acceptable Financial Accounting Standard. Governments are typically not required to consolidate the financial results of nonGovernmental Entities that they own on a line-by-line basis.

36.3 As mentioned in paragraph 30 of the Commentary to Article 10, the condition in paragraph (b)(ii) of the definition of Governmental Entity is intended to include Entities such as sovereign wealth funds (including those incorporated as companies). Sovereign wealth funds are commonly established by governments to hold and manage their investments for the jurisdiction’s future fiscal needs, stabilising the jurisdiction’s balance of payments, and to strike an appropriate balance between domestic consumption and savings. They hold or manage the assets on behalf of the government or jurisdiction. In addition, governments may choose to hold or manage their investments through a sovereign wealth fund rather than directly by the government itself in order to reduce or eliminate potential conflicts between the government’s role as an investor and a business regulator. A sovereign wealth fund is thus akin to an investment company or an asset management company, wholly-owned by the government, that consolidates the government’s investment activities. It is unlike the headquarters company of a conglomerate business.