Article 10.1. Defined Terms

Article 10.1 contains defined terms that are used in the GloBE Rules. The majority of these terms are discussed in the Commentary to the Articles that use those terms. The remaining defined terms are discussed here in the Commentary to Article 10.1.

The GloBE Rules and Commentary also use a number of common financial accounting terms, such as “profit and loss statement,” and phrases, such as “movement in an account” or “reversal of a liability”, that are not defined in Article 10.1. When financial accounting terminology or concepts that are not defined in Article 10.1 are used in the GloBE Rules or Commentary in connection with a GloBE Rule or principle that relies on financial accounting, such terms and concepts should be interpreted consistent with the meaning given to them in financial accounting standards and guidance. In addition, accounting terms used in the GloBE Rules or Commentary that equate to a different term used in another accounting standard are intended to incorporate or encompass the other term. For example, the terms “profit and loss statement” and “income statement” are used in different financial accounting standards to describe the same financial accounting statement. Thus, when the Commentary refers to a profit and loss statement, it is also referring to an income statement.

10.1.1. The terms set out below have the following definitions:

Acceptable Financial Accounting Standard means International Financial Reporting Standards (IFRS) and the generally accepted accounting principles of Australia, Brazil, Canada, Member States of the European Union, Member States of the European Economic Area, Hong Kong (China), Japan, Mexico, New Zealand, the People’s Republic of China, the Republic of India, the Republic of Korea, Russia, Singapore, Switzerland, the United Kingdom, and the United States of America.

Accrued Pension Expense means the difference between the amount of pension liability expense included in the Financial Accounting Net Income or Loss and the amount contributed to a Pension Fund for the Fiscal Year.

Additional Current Top-up Tax is the amount of tax determined in Article 5.4 and any amount treated as Additional Current Top-up Tax determined under Article 5.4, such as the amount determined under Article 4.1.5 or Article 7.3.

Additional Tier One Capital means an instrument issued by a Constituent Entity pursuant to prudential regulatory requirements applicable to the banking sector that is convertible to equity or written down if a pre-specified trigger event occurs and that has other features which are designed to aid loss absorbency in the event of a financial crisis.

Additions to Covered Taxes is defined in Article 4.1.2.

Adjusted Asset Gain in respect of Aggregate Asset Gain that is subject to an election under Article 3.2.6 means an amount equal to the Aggregate Asset Gain in the Election Year, reduced by any amount of such gain that has been applied against the Net Asset Loss in a prior Loss Year under Article 3.2.6(b) or (c).

Adjusted Covered Taxes is defined in Article 4.1.1.

Aggregate Asset Gain in respect of an election under Article 3.2.6, means the net gain in the Election Year from the disposition of Local Tangible Assets by all Constituent Entities located in the jurisdiction excluding the gain or loss on a transfer of assets between Group Members.

Agreed Administrative Guidance means guidance on the interpretation or administration of the GloBE Rules issued by the Inclusive Framework.

Allocable Share of the Top-up Tax is defined in Article 2.2.1.

Annual Election means an election made by a Filing Constituent Entity and that applies only for the Fiscal Year for which the election is made.

Allocated Asset Gain in respect of an election under Article 3.2.6, means the Adjusted Asset Gain that is allocated to a Fiscal Year in the Lookback Period under Article 3.2.6(d).

Arm’s Length Principle means the principle under which transactions between Constituent Entities must be recorded by reference to the conditions that would have been obtained between independent enterprises in comparable transactions and under comparable circumstances.

Asymmetric Foreign Currency Gains or Losses means foreign currency gains or losses of an entity whose accounting and tax functional currencies are different and that are:

(a) included in the computation of a Constituent Entity’s taxable income or loss and attributable to fluctuations in the exchange rate between its accounting functional currency and its tax functional currency;

(b) included in the computation of a Constituent Entity’s Financial Accounting Net Income or Loss and attributable to fluctuations in the exchange rate between its tax functional currency and its accounting functional currency;

(c) included in the computation of a Constituent Entity’s Financial Accounting Net Income or Loss and attributable to fluctuations in the exchange rate between a third foreign currency and its accounting functional currency; and

(d) attributable to fluctuations in the exchange rate between a third foreign currency and its tax functional currency, whether or not such foreign currency gain or loss is included in taxable income.

The tax functional currency is the functional currency used to determine the Constituent Entity’s taxable income or loss for a Covered Tax in the jurisdiction in which it is located. The accounting functional currency is the functional currency used to determine the Constituent Entity’s Financial Accounting Net Income or Loss. A third foreign currency is a currency that is not the Constituent Entity’s tax functional currency or accounting functional currency.

Authorised Accounting Body is the body with legal authority in a jurisdiction to prescribe, establish, or accept accounting standards for financial reporting purposes.

Authorised Financial Accounting Standard, in respect of any Entity, means a set of generally acceptable accounting principles permitted by an Authorised Accounting Body in the jurisdiction where that Entity is located.

Authorised Financial Accounting Standard

3. The GloBE Rules lean heavily on the accounting principles applicable in the Consolidated Financial Statements. Consequently, the definition of Consolidated Financial Statements is central to defining the scope and operation of the GloBE Rules. In those cases where the UPE does not otherwise prepare financial statements on a consolidated basis or in accordance with an Acceptable Financial Accounting Standard, the GloBE Rules rely on the accounting principles that would apply if the UPE had prepared such statements in accordance with an Authorised Financial Accounting Standard.

4. Authorised Financial Accounting Standards are the accounting standards permitted by an Authorised Accounting Body, which is the body with legal authority in a jurisdiction to prescribe, establish, or accept accounting standards for financial reporting purposes in the jurisdiction in which the Constituent Entity is located. An Authorised Financial Accounting Standard may be one included in the list of Acceptable Financial Accounting Standard or it may be another locally permitted financial accounting standard. Where a locally-permitted financial accounting standard is not listed as an Acceptable Financial Accounting Standard, then the GloBE Rules require the outcomes under the local accounting standard to be compared with the expected outcomes under IFRS in order to evaluate whether there is a significant differences between the local standard and IFRS. In this case the treatment of items or transactions under the local accounting standard must be adjusted to neutralise the effect if any Material Competitive Distortions. The definition of Material Competitive Distortion is discussed further below in the Commentary to this Article. In any case, it is expected that a locally-permitted financial accounting standard that conforms to IFRS in all material respects will not produce any Material Competitive Distortions.

Average GloBE Income or Loss is defined in Article 5.5.2.

Average GloBE Revenue is defined in Article 5.5.2.

Commentary means the Commentary to the GloBE Rules as developed by the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting.

Consolidated Financial Statements means:

(a) the financial statements prepared by an Entity in accordance with an Acceptable Financial Accounting Standard, in which the assets, liabilities, income, expenses and cash flows of that Entity and the Entities in which it has a Controlling Interest are presented as those of a single economic unit;

(b) where an Entity meets the definition of a Group under Article 1.2.3, the financial statements of the Entity that are prepared in accordance with an Acceptable Financial Accounting Standard;

(c) where the Ultimate Parent Entity has financial statements described in paragraph (a) or (b) that are not prepared in accordance with an Acceptable Financial Accounting Standard, the financial statements are those that have been prepared subject to adjustments to prevent any Material Competitive Distortions; and

(d) where the Ultimate Parent Entity does not prepare financial statements described in the paragraphs above, the Consolidated Financial Statements of the Ultimate Parent Entity are those that would have been prepared if such Entity were 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.

As part of the Agreed Administrative Guidance from 2 February 2023 an elaboration of the “Deemed Consolidation test” were published.

It includes the following regarding this definition:

Paragraph (d)

8.1 Paragraph (d) of the definition of Consolidated Financial Statements is a deemed consolidation test that applies where the UPE does not, in fact, prepare financial statements in accordance with an Authorised Financial Accounting Standard. The deemed consolidation test typically applies where the GloBE Rules depend on a determination derived from a Group or Entity’s financial statements or financial accounts and the relevant Group or Entity does not prepare Consolidated Financial Statements using an Authorized Financial Accounting Standard. The GloBE Rules rely on the accounting consolidation rules to determine whether a Group exists. However, in some cases, a parent entity does not consolidate its subsidiaries because there is no statute or regulation that requires it to prepare Consolidated Financial Statements in accordance with IFRS or a local GAAP (e.g. a privately and family-owned multinational corporation). Nothing prevents the GloBE Rules to apply to these cases because, under the deemed consolidation test, even if the group does not have Consolidated Financial Statements, it would be required to prepare them if the application of the accounting standard was compulsory in accordance with a law or regulations. The test does not change the content of the accounting standard but rather asks whether a consolidation group would have existed if the application of the standard was compulsory.

8.2 The deemed consolidation test requires preparation of a set of Consolidated Financial Statements based on an Authorized 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. The MNE Group may choose among the Authorized Financial Accounting Standards applicable in the UPE’s location. This deemed set of Consolidated Financial Statements is then used for the purposes of applying other parts of the GloBE Rules, for example in determining whether an MNE Group meets the revenue threshold test in Article 1.1 or whether an Entity should be treated as a Constituent Entity of an MNE Group. Further, the Authorised Financial Accounting Standard used to prepare the deemed set of Consolidated Financial Statements is generally used to determine Financial Accounting Net Income or Loss and Adjusted Covered Taxes of Constituent Entities.

8.3 The deemed consolidation test does not, however, modify the rules to be applied under that Authorised Financial Accounting Standard and therefore does not alter the outcomes of applying the standard. Specifically, it does not require an Entity to consolidate the assets, liabilities, income, expenses, and cash flows of another Entity on a line-by-line basis where the Authorised Financial Accounting Standard does not require such consolidation. For example, if the Authorized Financial Accounting Standard permits an Entity that qualifies as an investment entity under criteria specified in the accounting standard to reflect certain of its investments (including majority ownership interests in other Entities) in the financial statements based on the fair value of those investments, the deemed consolidation test will not require instead that those investments be consolidated on a line-by-line basis. Accordingly, an Entity that qualifies as an investment entity under an Authorised Financial Accounting Standard and prepares a financial statement that reflects investments at fair value pursuant to that accounting standard cannot be required to prepare a financial statement under the deemed consolidation test that consolidates the investments on a line-by-line basis. Likewise, an Entity that qualifies as an investment entity under the relevant accounting standard may prepare a Consolidated Financial Statement that reflects investments at fair value under the deemed consolidation test and cannot be required to prepare a financial statement that consolidates the investments on a line-by-line basis.

8.4 The operation of the deemed consolidation test is illustrated in Examples 10.1-1 through 10.1-4.

Interaction with Article 1.2.2(b)

8.5 The definition of a Group in Article 1.2.2(b) includes Entities that are excluded from the Consolidated Financial Statements of an Ultimate Parent Entity solely on size or materiality grounds or on the grounds that the Entity is held for sale. This principle also applies with respect to each paragraph of the Consolidated Financial Statements definition. Thus, if either the Consolidated Financial Statements or the deemed Consolidated Financial Statements prepared in accordance with an Authorized Financial Accounting Standard would exclude an Entity solely on the basis that it is immaterial or held for sale, that Entity is nonetheless part of the Group pursuant to Article 1.2.2(b).

Constituent Entity (CE) is defined in Article 1.3.1.

Constituent Entity-owner means a Constituent Entity that directly or indirectly owns an Ownership Interest in another Constituent Entity of the same MNE Group.

Controlled Foreign Company Tax Regime means a set of tax rules (other than an IIR) under which a direct or indirect shareholder of a foreign entity (the controlled foreign company or CFC) is subject to current taxation on its share of part or all of the income earned by the CFC, irrespective of whether that income is distributed currently to the shareholder.

CFC Tax Regime

5. The rules in Article 4.3 generally allocate the Covered Taxes imposed on an item of income to the jurisdiction where the corresponding income arose. These rules include a specific rule in Article 4.3.2(c) for allocation of Covered Taxes arising under a CFC Tax Regime. The rule applies to Covered Taxes (CFC taxes) imposed on one Constituent Entity (the CFC shareholder) under a CFC Tax Regime in respect of income derived by another Constituent Entity (the CFC) located in a foreign jurisdiction. A jurisdiction that provides an exemption regime to PEs may apply its CFC Tax Regime to a PE located in another the jurisdiction in the same manner as if that PE was a foreign subsidiary.

6. CFC taxes imposed on a CFC shareholder are computed by reference to the shareholder’s proportionate share of the income (or a specific item of income) derived by any CFC. CFC taxes are generally imposed on a current basis and may be imposed at the same or different rate as the CFC shareholder’s regular tax rate. That is to say, the trigger for a tax liability under CFC Tax Regime is when the income is derived by the foreign subsidiary, not when it is distributed to a shareholder.

7. Although CFC Tax Regimes share some similarities with rules for the treatment of Tax Transparent Entities detailed in Article 10.2, CFC Tax Regimes generally apply to foreign corporate Entities, i.e. Entities that are not fiscally transparent under the laws of the jurisdiction where owner is located. Thus, absent the CFC Tax Regime, the shareholder generally would not be subject to tax in respect of the CFC’s income (its attributable share) on a current basis, until the income is distributed. CFC Tax Regimes generally have special rules that restrict their operation to certain circumstances, such as when the shareholder or a group of domestic shareholders has a certain level of ownership, usually greater than 50%, in the foreign subsidiary

8. An IIR is not included in the definition of a CFC Tax Regime. Although CFC Tax Regimes impose tax on the owners of a foreign subsidiary, they are distinguishable from an IIR in that, the Top-up Tax under the IIR is initially computed on a jurisdictional basis so as to bring the tax paid on excess profits in that jurisdiction up to an agreed minimum tax rate. Those taxes are then allocated to each LTCE in proportion to that Entity’s GloBE Income before being brought into charge by a Parent Entity. Given the policy and mechanical differences between the two, a jurisdiction is not required to replace an existing CFC Tax Regime by introducing an IIR and, therefore, is not prevented from employing both an IIR and a CFC Tax Regime in its domestic tax laws.

Controlling Interest means an Ownership Interest in an Entity such that the interest holder:

(a) is required to consolidate the assets, liabilities, income, expenses and cash flows of the Entity on a line-by-line basis in accordance with an Acceptable Financial Accounting Standard; or

(b) would have been required to consolidate the assets, liabilities, income, expenses and cash flows of the Entity on a line-by-line basis if the interest holder had prepared Consolidated Financial Statements.

A Main Entity is deemed to have the Controlling Interests of its Permanent Establishments

As part of the Agreed Administrative Guidance from 2 February 2023 an elaboration of the “Deemed Consolidation Test” were published and a reference was also made to article 1.4.1.

It includes the following regarding this definition:

Paragraph (b)

8.6 Paragraph (b) of the definition of Controlling Interests is a deemed consolidation test that leverages the consolidation rules under the financial accounting standard used in the preparation of the UPE’s Consolidated Financial Statements. It provides that one Entity with an Ownership Interest in another Entity is treated as holding a Controlling Interest in that Entity where the interest holder would be required to be consolidated with that other Entity if it had prepared Consolidated Financial Statements and thus ties into the deemed consolidation test set out in paragraph (d) of the definition of Consolidated Financial Statements. Accordingly, the deemed Consolidated Financial Statements in paragraph (b) of the Controlling Interests definition are those that the Entity would have prepared using an Authorized 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. As discussed in the Commentary on paragraph (d) of the definition of Consolidated Financial Statements, the deemed consolidation test does not modify the standards or alter the outcomes that are provided for under the relevant accounting standard. Similarly, it does not treat a holder of an Ownership Interest as holding a Controlling Interest in an Entity where the relevant accounting standard would not require consolidation of the assets, liabilities, income, expenses, and cash flows of another Entity on a line-by-line basis. The operation of the deemed consolidation test is illustrated in Examples 10.1-1 through 10.1-4.

Interaction with Article 1.2.2(b)

8.7 The definition of a Group in Article 1.2.2(b) includes Entities that are excluded from the Consolidated Financial Statements of an Ultimate Parent Entity solely on size or materiality grounds or on the grounds that the Entity is held for sale. This principle also applies with respect to each paragraph of the Consolidated Financial Statements definition. Thus, if either the Consolidated Financial Statements or the deemed Consolidated Financial Statements prepared in accordance with an Authorized Financial Accounting Standard would exclude an Entity solely on the basis that it is immaterial or held for sale, that Entity is nonetheless part of the Group pursuant to Article 1.2.2(b).

See Commentary to the definition of UPE in Article 1.4.1 in the case of Ownership Interests held by a sovereign wealth fund that qualifies as a Governmental Entity.

Cooperative means an Entity that collectively markets or acquires goods or services on behalf of its members and that is subject to a tax regime in the jurisdiction in which it is located that is designed to ensure tax neutrality in respect of members’ property or services sold through the cooperative and property or services acquired by members through the cooperative.

Deductible Dividend means, with respect to a Constituent Entity that is subject to a Deductible Dividend Regime, (a) a distribution of profits to the holder of an Ownership Interest that is deductible from taxable income of the Constituent Entity under the laws of the jurisdiction in which it is located; or (b) a patronage dividend to a member of a Cooperative.

Covered Taxes is defined in Article 4.2.

Deductible Dividend Regime means a tax regime designed to yield a single level of taxation on the owners of an Entity through a deduction from the income of the Entity for distributions of profits to the owners. For this purpose, patronage dividends of a Cooperative are treated as distributions to owners. A Deductible Dividend Regime also includes a regime applicable to Cooperatives that exempts the Cooperative from taxation.

Deemed Distribution Tax is defined in Article 7.3.2

Deemed Distribution Tax Recapture Account means an account maintained in accordance with Article 7.3.3.

Departing Constituent Entity means a Constituent Entity that is subject to an election under Article 7.3.1 and that leaves the MNE Group or transfers substantially all of its assets to a person that is not a Constituent Entity of the same MNE Group located in the same jurisdiction.

Designated Filing Entity means the Constituent Entity, other the Ultimate Parent Entity, that has been appointed by the MNE Group to file the GloBE Information Return on behalf of the MNE Group.

Designated Local Entity means the Constituent Entity of an MNE Group that is located in [implementing-Jurisdiction] and that has been appointed by the other Constituent Entities located in [implementing-Jurisdiction] of the MNE Group to file the GloBE Information Return, or to submit the notifications under Article 8.1.3.

Disallowed Accrual is defined in Article 4.4.6.

Disposition Recapture Ratio is defined in Article 7.3.8.

Disqualified Refundable Imputation Tax means any amount of Tax, other than a Qualified Imputation Tax, accrued or paid by a Constituent Entity that is:

(a) refundable to the beneficial owner of a dividend distributed by such Constituent Entity in respect of that dividend or creditable by the beneficial owner against a tax liability other than a tax liability in respect of such dividend; or

(b) refundable to the distributing corporation upon distribution of a dividend.

Disqualified Refundable Imputation Tax

9. The GloBE Rules exclude Disqualified Refundable Imputation Taxes from the definition of Covered Taxes. Disqualified Refundable Imputation Taxes are taxes, other than Qualified Imputation Taxes, that are initially imposed on the income of a Constituent Entity but when that income is distributed by way of dividend to the owners of the Constituent Entity, the Tax is refunded to the Constituent Entity or the owner or creditable against a tax liability of the owner other than a tax liability arising from the dividend. Disqualified Refundable Imputation Taxes are generally distinguishable from a Qualified Imputation Tax because they are not intended and, in practice, do not produce a single level of taxation. This is because the taxes are refunded without the dividend recipient being subject to tax on the distributed income. The final result of these tax regimes is that the income of the corporation is not subject to tax at all in the hands of the corporation or the shareholder. However, the definition also includes a tax that would meet the definition of a Qualified Imputation Tax except that the beneficial owners is subject to a nominal tax rate below the Minimum Rate on the distribution or to an individual who is not subject to tax on the dividends as ordinary income. Accordingly, Disqualified Refundable Imputation Taxes when accrued in the Constituent Entity’s financial accounts or when paid to the relevant tax authority do not qualify as a Covered Tax and are not taken into account in computing the ETR of the jurisdiction in which the Constituent Entity is located. Similarly, the actual refund of a Disqualified Refundable Imputation Tax does not reduce Adjusted Covered Taxes.

10. The definition of Disqualified Refundable Imputation Tax extends only to the Taxes paid or accrued by the Constituent Entity in respect of its income that are refundable or creditable upon distribution of a dividend. Thus, if Tax paid in respect of certain types of income earned by the Constituent Entity’ is not refundable upon distribution of a dividend, that amount of Tax is not a Disqualified Refundable Imputation Tax.

11. Taxes imposed on the dividend recipient and withheld by the distributing corporation on the payment of that dividend are not Disqualified Refundable Imputation Taxes, even if part or all of the withholding tax is ultimately refunded to the shareholder by the tax authority. These taxes are distinguishable from Disqualified Refundable Imputation Taxes because they are imposed on the shareholder when the dividend is distributed and reduce the net amount received by the shareholder. If the withheld tax is refunded to the shareholder, it is a refund of tax that was initially paid by the shareholder.

Dual-listed Arrangement means an arrangement entered into by two or more Ultimate Parent Entities of separate Groups, under which:

(a) the Ultimate Parent Entities agree to combine their business by contract alone;

(b) pursuant to contractual arrangements the Ultimate Parent Entities will make distributions (with respect to dividends and in liquidation) to their shareholders based on a fixed ratio;

(c) their activities are managed as a single economic entity under contractual arrangements while retaining their separate legal identities;

(d) the Ownership Interests in the Ultimate Parent Entities comprising the agreement are quoted, traded or transferred independently in different capital markets; and

(e) the Ultimate Parent Entities prepare Consolidated Financial Statements in which the assets, liabilities, income, expenses and cash flows of all the Entities of the Groups are presented together as those of a single economic unit and that are required by a regulatory regime to be externally audited.

Effective Tax Rate (ETR) is defined in Article 5.1.1.

Election Year in respect of an Annual Election means the year for which the election is made.

Eligible Distribution Tax System means a corporate income tax system that:

(a) imposes an income tax on the corporation with the tax generally payable only when the corporation distributes profits to shareholders, is deemed to distribute profits to shareholders, or incurs certain non-business expenses;

(b) imposes tax at a rate equal to or in excess of the Minimum Rate; and

(c) was in force on or before 1 July 2021.

Eligible Distribution Tax System

12. The GloBE Rules contain an election in Article 7.3 with respect to Constituent Entities that are subject to an Eligible Distribution Tax System. Special rules are needed for these distribution tax systems because most of the tax imposed arises when corporate profits are actually distributed or deemed distributed and these distributions often occur after the year in which the related income is included in the computation of GloBE Income or Loss.

13. The term Eligible Distribution Tax system is used to describe the types of distribution tax systems that are eligible for special treatment under the GloBE Rules. An eligible distribution tax system is one that:

a.) imposes an income tax on the corporation with the tax generally payable only when the corporation distributes profits to shareholders, is deemed to distribute profits to shareholders, or incurs certain non-business expenses;

b.) imposes tax at a rate equal to or in excess of the Minimum Rate; and

c.) was in force on or before 1 July 2021.

14. An Eligible Distribution Tax System is a CIT that is imposed on the distributing corporation. It does not include taxes imposed on the shareholders in respect of distributions, even though these taxes may be withheld and remitted by the distributing corporation.

15. Distribution taxes are generally payable on a dividend or other distribution of profits from a corporation. However, the definition takes into account the fact that distribution tax systems may impose tax on actual or deemed distributions and on certain non-business expenses. This reflects the fact that these distribution tax systems typically include certain integrity measures to prevent taxpayers from enjoying the benefits of the profits of the corporation without incurring the charge to distribution tax. These measures may include the imposition of tax on certain deemed or hidden distributions. For example, certain loans granted to shareholders may be treated as a deemed or hidden distribution if the shareholder does not have the ability or intention to repay the loan. These deemed or hidden distributions are taxed in the same manner as actual distributions. There are also mechanisms designed to ensure that non-business expenses are subject to charge in the year the non-business expense arises.

16. To qualify as an Eligible Distribution Tax System, the system must impose tax at a rate that equals or exceeds the Minimum Rate. This requirement is intended to ensure that the deferral of tax permitted by the rule is not permitted with respect to income that would be low-taxed income in any case. This definition does not prevent an Eligible Distribution Tax System from having a graduated rate provided the rate that applies to MNE Groups within the scope of the GloBE Rules is at least equal to the Minimum Rate. Where a distribution tax jurisdiction applies tax at a nominal rate but requires that before applying the rate, the distributed amount has to be grossed up to reflect the gross tax basis before distribution tax, the statutory rate is the rate after the application of such gross up. To illustrate, assume that under a Distribution Tax System the taxpayer is subject to tax on a distribution at a rate of 14% but on a distribution that is grossed up by a factor 1/0.86. A Constituent Entity distributes EUR 100 of income. The tax on that distribution would be EUR 16.28 (14% x [100/0.86]), which is 16.3% of 100 and therefore above the minimum rate.

17. The final requirement for an Eligible Distribution Tax System is that it has been continuously in force since on or before 1 July 2021. This is the date of the first Inclusive Framework Statement on the Digitalisation of the Economy that agreed the special treatment of Eligible Distribution Tax Systems. This requirement does not prevent changes to a jurisdiction’s distribution tax system that are in line with its existing design.

Eligible Employees means employees, including part-time employees, of a Constituent Entity that is a member of the MNE Group and independent contractors participating in the ordinary operating activities of the MNE Group under the direction and control of the MNE Group.

Eligible Payroll Costs means employee compensation expenditures (including salaries, wages, and other expenditures that provide a direct and separate personal benefit to the employee, such as health insurance and pension contributions), payroll and employment taxes, and employer social security contributions.

Eligible Tangible Assets is defined in Article 5.3.4.

Entity means: (a) any legal person (other than a natural person); or (b) an arrangement that prepares separate financial accounts, such as a partnership or trust.

As part of the Agreed Administrative Guidance from 2 February 2023 an elaboration of the “Deemed Consolidation test” were published.

It includes the following regarding this defintion:

Paragraph (b)

17.1 The term Entity shall not include central, state, or local government or their administration or agencies that carry out government functions.

ETR Adjustment Article means Article 3.2.6, Article 4.4.4, Article 4.6.1, Article 4.6.4, and Article 7.3.

Excess Profit is defined in Article 5.2.2.

Excluded Dividends means dividends or other distributions received or accrued in respect of an Ownership Interest, except for: (a) a Short-term Portfolio Shareholding, and (b) an Ownership Interest in an Investment Entity that is subject to an election under Article 7.6.

Excluded Entity is defined in Article 1.5.1 and Article 1.5.2.

Excluded Equity Gain or Loss means the gain, profit or loss included in the Financial Accounting Net Income or Loss of the Constituent Entity arising from: (a) gains and losses from changes in fair value of an Ownership Interest, except for a Portfolio Shareholding; (b) profit or loss in respect of an Ownership Interest included under the equity method of accounting; and (c) gains and losses from disposition of an Ownership Interest, except for a disposition of a Portfolio Shareholding.

Filing Constituent Entity is an Entity filing the GloBE Information Return in accordance with Article 8.1.

Financial Accounting Net Income or Loss is defined in Article 3.1.2.

Fiscal Year means an accounting period with respect to which the Ultimate Parent Entity of the MNE Group prepares its Consolidated Financial Statements. In the case of Consolidated Financial Statements as defined in paragraph (d) of its definition, Fiscal Year means the calendar year.

Fiscal Year

18. Fiscal Year is defined as the accounting period used in the Consolidated Financial Statements (or, exceptionally in the case that such accounts are not prepared, the calendar year). Ordinarily, this period is a 12-month period or a period determined by reference to a specific day in a 12-month period, for example a 52-53 week Fiscal Year. However, it is possible that this period will not always be 12 months long and, in some cases, the GloBE Rules make specific provision to deal with long or short Fiscal Years, for example at Article 1.1.2. The Implementation Framework will further consider and provide guidance with respect to Fiscal Years that exceed 12 months, including instances in which a change in the Fiscal Year results in a transition year that exceeds 12 months.

Five-Year Election means an election made by a Filing Constituent Entity with respect to a Fiscal Year (the election year) that cannot be revoked with respect to the election year or the four succeeding Fiscal Years. If a Five-Year Election is revoked with respect to a Fiscal Year (the revocation year), a new election cannot be made with respect to the four Fiscal Years succeeding the revocation year.

Five-Year Election

19. This term is defined in Chapter 10 to mean an election made by a Filing Constituent Entity with respect to a Fiscal Year (the Election Year) that cannot be revoked with respect to the Election Year or the four succeeding Fiscal Years. A Five-Year Election remains in force indefinitely until a group actively revokes it. If a Five-Year Election is revoked with respect to a Fiscal Year (the revocation year), a new election cannot be made with respect to the four Fiscal Years succeeding the revocation year. Five-Year Elections are contained in Article 1.5.3, Article 3.2.2, Article 3.2.5, Article 3.2.8, Article 7.5.2, and Article 7.6.6.

20. The GloBE Implementation Framework will develop processes and provide guidance to facilitate the co-ordinated implementation of the GloBE Rules. This will include guidance to address the extent to which an election or revocation period continues when a Constituent Entity joins or leaves an MNE Group, including situations where an MNE Group subject to the GloBE Rules acquires Constituent Entities from another such MNE Group that made different choices in respect of Five-Year Elections in a particular jurisdiction, and necessary adjustments, if any, to the computation of GloBE Income or Loss.

General Government means the central administration, agencies whose operations are under its effective control, state and local governments and their administrations.

GloBE Implementation Framework means the procedures to be developed by the Inclusive Framework on BEPS in order to develop administrative rules, guidance, and procedures that will facilitate the coordinated implementation of the GloBE Rules.

GloBE Income of all Constituent Entities is defined in Article 5.1.2(a)

GloBE Income or Loss of a Constituent Entity is defined in Article 3.1.1.

GloBE Information Return means that standardized return to be developed in accordance with the GloBE Implementation Framework that contains the information described in Article 8.1.4.

GloBE Loss Deferred Tax Asset is defined in Article 4.5.

GloBE Loss Election is defined in Article 4.5.1.

GloBE Losses of all Constituent Entities is defined in Article 5.1.2(b).

GloBE Reorganisation means a transformation or transfer of assets and liabilities such as in a merger, demerger, liquidation, or similar transaction where: (a) the consideration for the transfer is, in whole or in significant part, equity interests issued by the acquiring Constituent Entity or by a person connected with the acquiring Constituent Entity, or, in the case of a liquidation, equity interests of the target (or, when no consideration is provided, where the issuance of an equity interest would have no economic significance); (b) the disposing Constituent Entity’s gain or loss on those assets is not subject to tax, in whole or in part; and (c) the tax laws of the jurisdiction in which the acquiring Constituent Entity is located require the acquiring Constituent Entity to compute taxable income after the disposition or acquisition using the disposing Constituent Entity’s tax basis in the assets, adjusted for any Non-qualifying Gain or Loss on the disposition or acquisition.

GloBE Reorganisation

21. A GloBE Reorganisation is defined in Article 10.1. It is a broad definition that primarily refers to an acquisition or disposition where the sellers of the target entity are compensated with equity interests in the acquiring Entity or Group and the gains or losses on the acquired assets and liabilities are deferred under the local tax rules. Under local tax rules, gains or losses arising in connection with an asset reorganisation are generally deferred by requiring the acquiring Constituent Entity to take the transferor’s carrying amounts of the acquired assets and liabilities. This mechanism preserves the built-in gain or loss on the assets and liabilities at the time of the reorganisation, which will be realised through the use of the assets in the production of income or upon sale. The GloBE Reorganisation definition relies on local tax rules that are based on these concepts.

22. Article 10.1 broadly defines the types of restructuring transactions that may qualify as a GloBE Reorganisation. The conditions in paragraphs (a) to (c) of the definition must also be met before a transaction qualifies as a GloBE Reorganisation. Thus, a transformation or transfer of assets and liabilities such as in a merger, demerger, liquidation, or similar transaction may qualify as a GloBE Reorganisation. A transformation is a change in the form of an Entity, for example a change from a partnership to a corporation. The definition also includes, for example a contribution of assets to the capital of an existing Entity where the Entity does not issue new or additional Ownership Interests in exchange for the contributed property because the transaction does not result in a change in the relative ownership of the Entity and the issuance of additional Ownership Interest would be meaningless.

23. To qualify as a GloBE Reorganisation, the consideration for a transfer of assets and liabilities must be, in whole or in significant part, equity interests issued by the acquiring Constituent Entity or by a person connected with the acquiring Constituent Entity. A person should be treated as connected with the acquiring Constituent Entity for this purpose if it meets the test set out in Article 5(8) of the OECD Model Tax Convention (OECD, 2017). In the case of a liquidation, however, the consideration can be the cancellation of equity interests of the target. And as noted in the previous paragraph, in a capital contribution, no consideration is necessary where the issuance of an equity interest would have no economic significance. Finally, the definition of a GloBE Reorganisation does not impose any requirement with respect to whom the equity interests are issued. For instance, a transaction in which the equity interests are issued to the direct or indirect owner of the Entity whose assets and liabilities are acquired as part of the same arrangement could qualify as a GloBE Reorganisation.

24. The criteria to qualify as a GloBE Reorganisation in paragraphs (b) and (c) of the definition relate to the tax treatment of the transformation or transaction under local tax law. Under paragraph (b), the disposing Constituent Entity’s gain or loss on the assets and liabilities must be partially or wholly nontaxable at the time of the transformation or transaction. The transformation or transaction does not need to be wholly non-taxable. The definition accepts that there may be some gain or loss that doesn’t qualify for non-recognition treatment in the disposing Constituent Entity’s jurisdiction. (This gain or loss will generally be Non-Qualifying Gain or Loss as defined in Article 10.1 and will result in a corresponding gain or loss under Article 6.3.3, explained in more detail in the Commentary to Article 6.3.3.)

25. Paragraph (c) contains the other non-recognition criteria. It stipulates that the tax laws of the jurisdiction in which the acquiring Constituent Entity is located must require the acquiring Constituent Entity to compute taxable income after the acquisition using the disposing Constituent Entity’s tax basis in the assets and the same amount of liabilities, adjusted for any Non-Qualifying Gain or Loss on the disposition or acquisition. By preserving the disposing Constituent Entity’s tax basis of assets and liability amounts, the local tax rules ensure that the gain or loss on the acquired assets and liabilities does not permanently escape taxation, but is only deferred. And to the extent that gain or loss is recognised, the local tax rules adjust the tax basis of assets and amounts of liabilities to ensure that such gain or loss is not again subject to tax in the future.

GloBE Revenue is defined in Article 5.5.3(a) for the purposes of Article 5.5.2.

GloBE Rules means this set of rules as developed by the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting.

GloBE Safe Harbour means the exception provided in Article 8.2.1 to facilitate compliance by MNEs and administration by tax authorities. The conditions under which the Constituent Entities of an MNE Group located in a jurisdiction are eligible to the GloBE Safe Harbour will be established in accordance with a common and agreed process to be defined as part of the work undertaken by the Inclusive Framework on BEPS to develop the GloBE Implementation Framework.

Governmental Entity means an Entity that meets all of the following criteria set out in paragraphs (a) to (d) below:

(a) it is part of or wholly-owned by a government (including any political subdivision or local authority thereof);

(b) it has the principal purpose of: (i) fulfilling a government function; or (ii) 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; and does not carry on a trade or business;

(c) it is accountable to the government on its overall performance, and provides annual information reporting to the government; and

(d) its assets vest in such government upon dissolution and to the extent it distributes net earnings, such net earnings are distributed solely to such government with no portion of its net earnings inuring to the benefit of any private person.

Governmental Entity

26. A Governmental Entity is one of the types of entity excluded from the scope of the GloBE Rules under Article 1.5 (an Excluded Entity). Governmental Entities 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. In order to be a Governmental Entity within Article 10.1 of the GloBE Rules the Entity must:

a.) be part of or wholly-owned by a government (including any political subdivision or local authority thereof);

b.) have the principal purpose of fulfilling a government function or managing or investing that government’s or jurisdiction’s assets and not carry on a trade or business;

c.) be accountable to the government on its overall performance, and provide annual information reporting to the government; and

d.) distribute any earnings to the government and vest its assets in the government upon dissolution.

27. Each of these criteria are discussed in further detail below.

Paragraph (a)

28. Paragraph (a) provides that such Entity must be part of the government or wholly-owned by a government (including any political subdivision or local authority thereof). The phrase “part of” means an Entity that is created under public law. The reference to “wholly-owned by a government” extends the application of paragraph (a) to corporations or other Entities created under private law provided that they are wholly-owned (directly or indirectly) by a government. The word “government” means General Government, which is defined in Article 10.1 as the central administration, agencies whose operations are under its effective control, state and local governments.

Paragraph (b)

29. Paragraph (b) sets limits on the type of activities an Entity can undertake in order to qualify as a Governmental Entity. It states that the principal purpose of the Entity must be: (i) fulfilling a government function; or (ii) 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.

30. The “government function” in sub-paragraph (i) is a broad term that is intended to include activities such as providing public health care and education or building public infrastructure or ensuring defence capability and law enforcement within the jurisdiction. The condition in sub-paragraph (ii) is intended to include Entities such as sovereign wealth funds (including those incorporated as companies) which governments typically use to hold and manage their investments. Sovereign wealth funds are commonly established out of balance of payments surpluses, official foreign currency operations, the proceeds of privatisations, fiscal surpluses or receipts resulting from commodity exports. 1 The function of a sovereign wealth fund is to invest these amounts for the purpose of managing a country’s future fiscal needs, stabilising a country’s balance of payments and in order to strike an appropriate balance between domestic consumption and savings.

31. Furthermore, paragraph (b) requires that the Entity does not conduct a trade or business. In the context of the GloBE Rules, this requirement was included to differentiate commercial enterprises owned by the government from entities whose activities are limited to those referred in subdivisions (i) and (ii). For instance, a sovereign wealth fund would be expected to meet the conditions set out in paragraph (b) because its activities would be limited to those referred in subdivision (ii) and it would not be carrying out commercial activities that could constitute a trade or business. Similarly, if the government (including a Governmental Entity) incorporates an Entity that meets all the other requirements in the definition and such Entity only provides products or services for use by that government to fulfil a governmental function, then the activities of the Entity are assimilated to a government function rather than a trade or business. On the other hand, a commercial bank owned by the government would not comply with paragraph (b) as it would be engaged in a trade or business.

Paragraph (c)

32. Paragraph (c) requires that the Entity is accountable to the government (including a Governmental Entity) on its overall performance, and provides annual information reporting to the government (including a Governmental Entity).

Paragraph (d)

33. Lastly, the condition under paragraph (d) requires that if the Entity distributes its net earnings that these are paid to the government (including a Governmental Entity) and upon dissolution of the Entity, its assets will vest in the government (including a Governmental Entity). In considering whether a distribution of earnings is made to a person other than government the facts and circumstances of the payment need to be taken into account. For example, a central bank that is organised as a company under public law issues part of its shares to private shareholders who are entitled to a fixed return based on their contributions. The central bank is controlled by the government and upon dissolution all of its assets are vested to the government and not the private shareholders. Under these specific facts and circumstances, the privately held shares are, in substance similar to a financing instrument that is assimilated to the return of long-term bonds rather than shares and therefore, the return is not considered a distribution of net earnings.

Group is defined in Article 1.2.2 and 1.2.3.

Group Entity, in respect of any Entity or Group, means an Entity that is a member of the same Group.

High-Tax Counterparty means a Constituent Entity that is located in a jurisdiction that is not a Low-Tax Jurisdiction or that is located in a jurisdiction that would not be a Low-Tax Jurisdiction if its ETR were determined without regard to any income or expense accrued by that Entity in respect of an Intragroup Financing Arrangement.

IFRS means the International Financial Reporting Standards.

IIR means the rules set out in Article 2.1 to Article 2.3.

Included Revaluation Method Gain or Loss means the net gain or loss, increased or decreased by any associated Covered Taxes, for the Fiscal Year in respect of all property, plant and equipment that arises under an accounting method or practice that: (a) periodically adjusts the carrying value of such property to its fair value; (b) records the changes in value in Other Comprehensive Income; and (c) does not subsequently report the gains or losses recorded in Other Comprehensive Income through profit and loss.

Insurance Investment Entity means an Entity that would meet the definition of an Investment Fund or a Real Estate Investment Vehicle except that it is established in relation to liabilities under an insurance or annuity contract and is wholly-owned by an Entity that is subject to regulation in its location as an insurance company.

Intermediate Parent Entity means a Constituent Entity (other than a Ultimate Parent Entity, PartiallyOwned Parent Entity, Permanent Establishment, or Investment Entity) that owns (directly or indirectly) an Ownership Interest in another Constituent Entity in the same MNE Group.

International Organisation means any intergovernmental organisation (including a supranational organisation) or wholly-owned agency or instrumentality thereof that meets all of the criteria set out in paragraphs (a) to (c) below: (a) it is comprised primarily of governments; (b) it has in effect a headquarters or substantially similar agreement (for example, arrangements that entitle the organisation’s offices or establishments in the jurisdiction (e.g. a subdivision, or a local, or regional office) to privileges and immunities) with the jurisdiction in which it is established; and (c) law or its governing documents prevent its income inuring to the benefit of private persons.

International Organisation

34. An International Organisation is one of the types of Entity excluded from the scope of the GloBE Rules under Article 1.5 (an Excluded Entity). The rationale for excluding International Organisations is similar to that for the exclusion for Governmental Entities. 35. The definition of International Organisation in Article 10.1 aligns with that used in the Standard for Automatic Exchange of Financial Account Information in Tax Matters. The language in paragraph (b) includes an explanation of a “substantially similar agreement” which is taken from the Commentary to that standard.

International Shipping Income is defined in Article 3.3.2.

Intragroup Financing Arrangement means any arrangement entered into between two or more members of the MNE Group whereby a High Tax Counterparty directly or indirectly provides credit or otherwise makes an investment in a Low Tax Entity.

Investment Entity means: (a) an Investment Fund or a Real Estate Investment Vehicle; (b) an Entity that is at least 95% owned directly by an Entity described in paragraph (a) or through a chain of such Entities and that operates exclusively or almost exclusively to hold assets or invest funds for the benefit of such Investment Entities; and (c) an Entity where at least 85% of the value of the Entity is owned by an Entity referred to in paragraph (a) provided that substantially all of the Entity’s income is Excluded Dividends or Excluded Equity Gain or Loss that is excluded from the computation of GloBE Income or Loss in accordance with Articles 3.2.1 (b) or (c).

Investment Fund means an Entity that meets all of the criteria set out in paragraphs (a) to (g) below: (a) it is designed to pool assets (which may be financial and non-financial) from a number of investors (some of which are not connected); (b) it invests in accordance with a defined investment policy; (c) it allows investors to reduce transaction, research, and analytical costs, or to spread risk collectively; (d) it is primarily designed to generate investment income or gains, or protection against a particular or general event or outcome; (e) investors have a right to return from the assets of the fund or income earned on those assets, based on the contributions made by those investors; (f) the Entity or its management is subject to a regulatory regime in the jurisdiction in which it is established or managed (including appropriate anti-money laundering and investor protection regulation); and (g) it is managed by investment fund management professionals on behalf of the investors.

Investment Fund

36. The definition of Investment Fund draws on the definition of “investment entity” in IFRS 10 (IFRS Foundation, 2022) and the European Union Alternative Investment Fund Managers Directive 2011/61/EU (AIFMD) (European Union, 2011). To meet the definition of an Investment Fund, an Entity has to meet all of the following criteria:

a.) it is designed to pool assets (which may be financial and non-financial) from a number of investors (some of which are not connected);

b.) it invests in accordance with a defined investment policy;

c.) it allows investors to reduce transaction, research, and analytical costs, or to spread risk collectively;

d.) it is primarily designed to generate investment income or gains, or protection against a particular or general event or outcome;

e.) investors have a right to return from the assets of the fund or income earned on those assets, based on the contributions made by those investors;

f.) the Entity or its management is subject to a regulatory regime in the jurisdiction in which it is established or managed (including appropriate anti-money laundering and investor protection regulation); and

g.) it is managed by investment fund management professionals on behalf of the investors.

37. Each of these criteria is discussed in further detail below.

Paragraph (a)

38. Paragraph (a) requires the entity or arrangement to be designed to pool assets (financial and nonfinancial) from a number of investors (some of which are not connected). An investor could contribute cash or other kinds of liquid assets, or non-liquid assets such as immovable property to an Investment Fund.

39. Paragraph (a) requires that some of the investors of the fund be unconnected. A facts and circumstances test should be applied to determine whether two or more investors are connected. In any case, an investor should be treated as connected to another investor if it meets the test set out in Article 5(8) of the OECD Model Tax Convention (OECD, 2017[1]). That test provides that two persons are connected if one possesses directly or indirectly more than 50% of the beneficial interest in the other (or in the case of a company, more than 50% of the aggregate vote and value of the company’s share or the beneficial equity interest in the company) or if another person possesses directly or indirectly more than 50% of the beneficial interests in each person (or in the case of a company, more than 50% of the aggregate vote and value of the company’s share or the beneficial equity interest in the company). Furthermore, two investors that are individuals are considered to be connected if they are part of the same family including a spouse or civil partner, siblings, parents, and ancestors and lineal descendants such as grandparents and grandchildren. In some instances, a fund will only have one investor for a short period of time, even though the fund is designed to pool assets for more than one unrelated investor. For example, a fund might have a single investor when the entity is within the initial offering period or in the process of liquidation. A fund in these circumstances with only one investor will meet the criteria of paragraph (a) provided that the fund was designed to pool assets from a number of investors (some of which are unconnected).

Paragraph (b)

40. Paragraph (b) requires an Investment Fund to have a defined investment policy and to invest according to that policy. Some factors that would, singly or cumulatively, tend to indicate the existence of such a policy are the following:

a.) the investment policy is determined and fixed, at the latest by the time that investors’ commitments to the Investment Fund become binding on them;

b.) the investment policy is set out in a document which becomes part of or is referenced in the rules or instruments of incorporation of the Investment Fund;

c.) the Investment Fund or the legal person managing the Investment Fund has an obligation (however arising) to investors, which is legally enforceable by them, to follow the investment policy, including all changes to it; and

d.) the investment policy specifies investment guidelines, with reference to criteria including any or all of the following: (i) to invest in certain categories of assets, or conform to restrictions on asset allocation; (ii) to pursue certain strategies; (iii) to invest in particular geographical regions; (iv) to conform to restrictions on leverage; (v) to conform to minimum holding periods; or (vi) to conform to other restrictions designed to provide risk diversification.

Paragraph (c)

41. Paragraph (c) provides that the Investment Fund shall allow investors to reduce transaction, research and analytical costs, or to spread risk collectively. An Entity that is designed to undertake a particular function for members of an MNE Group (such as centralised financial or procurement services) could be described as reducing transaction costs or spreading risks. Nevertheless, such an Entity could not meet the wider definition of an Investment Fund.

Paragraph (d)

42. To qualify as an Investment Fund, the Entity must primarily be designed to generate investment income or gains, as opposed to operating income. The income generated through the fund has to be income that is derived from investment holdings such as dividends, interest, rent, returns from other Investment Funds and capital gains. Royalties are not included in this category. Alternatively, paragraph (d) permits that the fund is designed for the protection against a particular or general event or outcome. This wording is intended to cover situations where an Investment Fund is used by the insurance industry to cover insured events or outcomes.

Paragraph (e)

43. Paragraph (e) requires the investors to have a right to the return from the assets of the fund or income earned on those assets based on the contributions made by the investors. Investors may also earn capital gains from the disposal of Ownership Interests of the fund.

Paragraph (f)

44. The requirement under paragraph (f) is that the fund or the fund manager is subject to a regulatory regime in the jurisdiction in which it is established or managed (including appropriate anti-money laundering and investor protection regulation). This paragraph is intended to encompass the different approaches to prudential regulation of Investment Funds. In respect of an fund that is established or created by a government or that acts as an agent or mandatary of a government, to the extent that it does not qualify as a Governmental Entity, regulation may take any form endorsed by the General Government, for example provisions for accountability and review contained in the Investment Fund’s constituting legislation.

Paragraph (g) 45. Finally, paragraph (g) requires the fund to be managed by professionals on behalf of the investors. The factors that would, singly or cumulatively, tend to indicate that the fund is managed by fund management professionals, include the following:

a.) The fund managers operate independently of the investors, and are not directly employed by the investors;

b.) The fund managers are subject to national regulation regarding knowledge and competence;

c.) Management compensation for services rendered is partly based on the performance of the fund.

Joint Venture

46. Joint ventures are not Constituent Entities of the MNE Group because under financial accounting standards their income, expenses, assets and liabilities are not consolidated with those of the rest of the MNE Group on a line-by-line basis. However, the low-taxed income of a joint venture, as defined for accounting purposes, will be brought within the scope of the GloBE Rules in accordance with Article 6.4, if it meets the following definition:

“Joint Venture means an Entity whose financial results are reported under the equity method in the Consolidated Financial Statements of the UPE provided that the UPE holds directly or indirectly at least 50% of its Ownership Interests.”

47. Under various acceptable and authorised accounting standards, the definition of a joint-venture includes Entities in which the joint-venturer has less than 50% of its Ownership Interests provided that the joint-venturer has joint control over the Entity. However, under the GloBE Rules, the JV definition only includes those Entities in which the UPE holds directly or indirectly at least 50% of the Ownership Interests in the joint venture. For example, the definition in the GloBE Rules could apply to an equity investment held by a Constituent Entity in a joint venture where the terms of that investment entitle the investor to 50% or more of the profits, capital or reserves (the relevant test for GloBE purposes) but only 50% of the voting rights (the relevant test for financial accounting purposes).

48. The second sentence of the definition of JV sets a list of Entities that are excluded from the rules of Article 6.4. These exclusions are discussed in further detail below.

Paragraph (a)

49. Paragraph (a) excludes from the JV definition a UPE of a separate MNE Group that is subject to the GloBE Rules. This avoids treating a UPE of an MNE Group that is already subject to the GloBE Rules as a JV of another MNE Group and therefore, potentially subject to taxation under the GloBE Rules applied by two jurisdictions (once as a standalone MNE Group and another by virtue of Article 6.4 applicable to the second MNE Group).

Paragraph (b) to (d)

50. An Entity that would otherwise be treated as JV is excluded from the special rules in Article 6.4 if it meets the criteria of an Excluded Entity in accordance with Article 1.5. Paragraph (b) refers to the Entities described in Article 1.5.1, while paragraph (c) mirrors the extension to the Excluded Entity definition in Article 1.5.2.

51. Paragraph (c) requires that the Entity is held directly through an Excluded Entity referred in Article 1.5.1. This is the same requirement included in Article 1.5.2(a) and 1.5.2(b). The only difference is that those provisions include a “95% ownership test” and a “wholly or mainly owned test”. Making reference to such tests would made this paragraph inapplicable because the MNE Group would hold typically hold 50% of the Ownership Interests of the Entity to which this paragraph applies. This paragraph is then divided into three subparagraphs that replicate the requirements set out in Article 1.5.2.

52. Paragraph (d) confirms that an Entity that is held by an MNE Group composed exclusively by Excluded Entities is not a JV. This ensures that an MNE Group that would otherwise be excluded from the GloBE Rules because all of its Constituent Entities are Excluded Entities are not subject to the rules because they hold an interest in a JV.

Paragraph (e)

53. Paragraph (e) provides that a JV Subsidiary is not a JV. The distinction between JV and JV Subsidiary is used in the definition of JV Group.

Joint Venture (JV) means an Entity whose financial results are reported under the equity method in the Consolidated Financial Statements of the Ultimate Parent Entity provided that the Ultimate Parent Entity holds directly or indirectly at least 50% of its Ownership Interests. A Joint Venture does not include:

(a) an Ultimate Parent Entity of an MNE Group that is subject to the GloBE Rules;

(b) an Excluded Entity as defined by Article 1.5.1;

(c) an Entity whose Ownership Interest held by the MNE Group are held directly through an Excluded Entity referred in Article 1.5.1 and the Entity: (i) operates exclusively or almost exclusively to hold assets or invest funds for the benefit of its investors; (ii) carries out activities that are ancillary to those carried out by the Excluded Entity; or (iii) substantially all of its income is excluded from the computation of GloBE Income or Loss in accordance with Articles 3.2.1(b) and (c).

(d) an Entity that is held by an MNE Group composed exclusively of Excluded Entities; or

(e) a JV Subsidiary.

JV Group means a Joint Venture and its JV Subsidiaries.

JV Group Top-up Tax means the Ultimate Parent Entity’s Allocable Share of the Top-up Tax of all members of the JV Group.

JV Subsidiary means an Entity whose assets, liabilities, income, expenses and cash flows are consolidated by a Joint Venture under an Acceptable Financial Accounting Standard (or would have been required had it been required to consolidate such items in accordance with an Acceptable Financial Accounting Standard). A Permanent Establishment whose Main Entity is the Joint Venture or a JV Subsidiary shall be treated as a separate JV Subsidiary.

JV Subsidiary

54. JV Subsidiary is referred to in the definition of a JV Group and in Article 6.4. This term is defined as an Entity whose assets, liabilities, income, expenses and cash flows are consolidated by a JV under an Acceptable Financial Accounting Standard (or would have been consolidated had it been required to consolidate such items in accordance with an Acceptable Financial Accounting Standard). This means that the JV and JV Subsidiary are part of the same Group (the JV Group).

55. The second sentence of the definition clarifies that a PE whose Main Entity is the JV or a JV Subsidiary shall be treated as a separate JV Subsidiary. Consequently, under this rule, subsidiaries and PEs are treated the same for purposes of Article 6.4.1, i.e. both are JV Subsidiaries. This parallels the treatment of both subsidiaries and PEs as Constituent Entities.

Liable Constituent Entity (or Entities) means one or several Constituent Entities located in [implementing-Jurisdiction] that could be liable for Top-up Tax or subject to an adjustment under Chapter 2 if the GloBE Safe Harbour in Article 8.2.1 did not apply.

Local Tangible Asset means immovable property located in the same jurisdiction as the Constituent Entity.

Look-back Period in respect of an election under Article 3.2.6, means the Election Year and the four prior Fiscal Years.

Loss Year in respect of jurisdiction for which the Filing Constituent Entity has made an election under Article 3.2.6, means a Fiscal Year in the Lookback Period for which there is a Net Asset Loss for a Constituent Entity located in that jurisdiction and the total amount of Net Asset Loss of all such Constituent Entities exceeds the total amount of their Net Asset Gain.

Low-Taxed Constituent Entity means a Constituent Entity of the MNE Group that is located in a LowTax Jurisdiction or a Stateless Constituent Entity that, in respect of a Fiscal Year, has GloBE Income and is subject to an Effective Tax Rate (as determined under Chapter 5) in that Fiscal Year is lower than the Minimum Rate.

Low-Tax Entity means a Constituent Entity located in a Low Tax Jurisdiction or a jurisdiction that would be a Low-Tax Jurisdiction if the Effective Tax Rate for the jurisdiction were determined without regard to any income or expense accrued by that Entity in respect of an Intragroup Financing Arrangement.

Low-Tax Jurisdiction, in respect of an MNE Group in any Fiscal Year, means a jurisdiction where the MNE Group has Net GloBE Income and is subject to an Effective Tax Rate (as determined under Chapter 5) in that period that is lower than the Minimum Rate.

Main Entity, in respect of a Permanent Establishment, is the Entity that includes the Financial Accounting Net Income or Loss of the Permanent Establishment in its financial statements.

Main Entity

56. In the context of PEs, the term Main Entity was introduced in the GloBE Rules to refer to that part of an enterprise that would typically be referred to as the head office. The GloBE Rules avoid using the term “head office” however because that term does not have an agreed meaning and could lead to confusion, particularly in the context of Flow-through Entities. The mechanics of the GloBE Rules define the Main Entity as the Entity that includes in its financial statements the Financial Accounting Net Income or Loss that has been attributed to the PE in accordance with Article 3.4 (regardless of the person that is treated as the taxpayer subject to tax in the jurisdiction where the PE is located).

57. The definition of Main Entity is referred in several provisions in the GloBE Rules such as the definition of a Constituent Entity in Article 1.3 and in rules to allocate GloBE Income or Loss between a Main Entity and its PEs.

Material Competitive Distortion in respect of the application of a specific principle or procedure under a set of generally accepted accounting principles means an application that results in an aggregate variation greater than EUR 75 million in a Fiscal Year as compared to the amount that would have been determined by applying the corresponding IFRS principle or procedure. Where the application of a specific principle or procedure results in a Material Competitive Distortion, the accounting treatment of any item or transaction subject to that principle or procedure must be adjusted to conform to the treatment required for the item or transaction under IFRS in accordance with any Agreed Administrative Guidance.

Material Competitive Distortion

58. The term Material Competitive Distortion is used in the GloBE Rules as part of the system for identifying the Authorised Financial Accounting Standard used in the preparation of Consolidated Financial Statements (which are, in turn, the starting point for computing the GloBE Income or Loss of Constituent Entities).

59. A specific rule is required to eliminate Material Competitive Distortions because the GloBE Rules permit the use of different accounting standards as the starting point for computing GloBE Income or Loss. The Inclusive Framework has not undertaken a comparison of differences between financial accounting standards that may be used in each Inclusive Framework jurisdiction. The Material Competitive Distortions limitation serves as a normalising rule to limit the benefit that MNE Groups might otherwise achieve from unique accounting principles and standards permitted under an Authorised Financial Accounting Standard that are not available under an agreed Acceptable Financial Accounting Standard.

60. Under the GloBE Rules, a Material Competitive Distortion exists when the application of a specific principle or procedure permitted by a financial accounting standard that is not an Acceptable Financial Accounting Standard results in an aggregate variation greater than EUR 75 million in a Fiscal Year as compared to the amount that would have been determined by applying the corresponding IFRS principle or procedure. The aggregate variation refers to the total variation reflected in the Consolidated Financial Statements of the MNE Group, and thus, takes into account the impact of the principle or procedure on all affected transactions of all Constituent Entities of the MNE Group. Where the application of a specific principle or procedure results in a material competitive distortion, the accounting treatment of any item or transaction subject to that principle or procedure must be adjusted to conform to the treatment required for the item or transaction under IFRS in accordance with any Agreed Administrative Guidance.

Minimum Rate means fifteen percent (15%).

Minority-Owned Constituent Entity means a Constituent Entity where the Ultimate Parent Entity has a direct or indirect Ownership Interest in that Entity of 30% or less.

Minority-Owned Parent Entity means a Minority-Owned Constituent Entity that holds, directly or indirectly, the Controlling Interests of another Minority-Owned Constituent Entity, except where the Controlling Interests of the first-mentioned Entity are held, directly or indirectly, by another Minority-Owned Constituent Entity.

Minority-Owned Subgroup means a Minority-Owned Parent Entity and its Minority-Owned Subsidiaries.

Minority-Owned Subsidiary means a Minority-Owned Constituent Entity whose Controlling Interests are held, directly or indirectly, by a Minority-Owned Parent Entity.

MNE Group is defined in Articles 1.2.1. MNE Group’s Allocable Share of the Investment Entity’s GloBE Income is defined in Article 7.4.4.

Multi-Parented MNE Group means two or more Groups where: (a) the Ultimate Parent Entities of those Groups enter into an arrangement that is a Stapled Structure or a Dual-listed Arrangement; and (b) at least one Entity or Permanent Establishment of the combined Group is located in a different jurisdiction with respect to the location of the other Entities of the combined Group.

Net Asset Gain in respect of an election under Article 3.2.6, means the net gain from the disposition of Local Tangible Assets by a Constituent Entity located in the jurisdiction for which the election was made excluding the gain or loss on a transfer of assets to another Group Member.

Net Asset Loss in respect of a Constituent Entity and a Fiscal Year, means the net loss from the disposition of Local Tangible Assets by that Constituent Entity in that year excluding the gain or loss on a transfer of assets to another Group Member. The amount of Net Asset Loss shall be reduced by the amount of Net Asset Gain or Adjusted Asset Gain which is set-off against such loss pursuant to the application of Article 3.2.6(b) or (c) as a result of a previous election made under Article 3.2.6.

Net Book Value of Tangible Assets means the average of the beginning and end values of Tangible Assets after taking into account accumulated depreciation, depletion, and impairment, as recorded in the financial statements.

Net Book Value of Tangible Assets

61. The Net Book Value of Tangible Assets is used for two main purposes under the UTPR. First, the Net Book Value of Tangible Assets of a UTPR Jurisdiction is used to determine that jurisdiction’s UTPR percentage pursuant to Article 2.6. Second, the Net Book Value of Tangible Assets is used to assess whether an MNE is eligible for the exclusion from the UTPR under Article 9.3.

62. Under the definition set out in Article 10.1 of the GloBE Rules, the Net Book Value of Tangible Assets means: “… the average of the beginning and end values of Tangible Assets after taking into account accumulated depreciation, depletion, and impairment, as recorded in the financial statements.”

63. And Tangible Assets means: “… the tangible assets of all the Constituent Entities resident for tax purposes in the relevant tax jurisdiction. Tangible Assets do not include cash or cash equivalents, intangibles, or financial assets…” 

64. The Net Book Value of Tangible Assets is computed on a jurisdictional basis for all Constituent Entities located in the jurisdiction. For this purpose, the definition in Article 10.1 provides that the Net Book Value is computed as the average value of the beginning and end of year values of Tangible Assets held by the Constituent Entities located in that jurisdiction for a given Fiscal Year. Using an average value addresses potential significant changes in the amount of Tangible Assets held at one point during the Fiscal Year at the jurisdictional level, e.g. because of the transfer of a Constituent Entity.

65. For example, assume an MNE Group that has only one Constituent Entity in a jurisdiction and that Constituent Entity holds a single Tangible Asset with a Net Book Value of 100 at the beginning of the Fiscal Year. Assume the Constituent Entity sells this asset during the year. The Net Book Value of that Constituent Entity’s Tangible Assets at the end of Fiscal Year is zero. Therefore, the computation of the Net Book Value of Tangible Assets for that jurisdiction is equal to 50 [(100+0)/2)].

66. The Net Book Value of Tangible Assets is the sum of Net Book Values of all Tangible Assets held by Constituent Entities located in a given jurisdiction for a Fiscal Year, as well as Tangible Assets attributed to PEs. With regard to PEs, Tangible Assets are allocated to the tax jurisdiction in which the PE is located, provided those Tangible Assets are included in the separate financial accounts (or would have been included in the separate accounts) of that PE under the same principles as determined by Article 3.4.1 and adjusted in accordance with Article 3.4.2.

67. Although the Net Book Value of Tangible Assets takes into account depreciation and other cost recovery allowances, Tangible Assets also include tangible assets that are not subject to depreciation or other cost recovery allowance methods.

68. For purposes of determining the Net Book Value of Tangible Assets, the term “Tangible Assets” is in line with that provided in the report on BEPS Action 13 for purposes of CbCR and is not restricted to the “Eligible Tangible Assets” defined for purposes of Article 5.3.4. For example, the term “Tangible Assets” would include property (including land or buildings) held for investment, sale, or lease as well as Tangible Assets used in the generation of a Constituent Entity’s International Shipping Income and Qualified Ancillary International Shipping Income (i.e. ships, other maritime equipment and infrastructure), even though those assets are not Eligible Tangible Assets for purposes of Article 5.3.4. In addition, unlike what is required for the Eligible Tangible Assets referred to in Article 5.3.4 for purposes of the computation of the Substance-based Income Exclusion, there is no requirement that the Tangible Assets are located in the jurisdiction of the Constituent Entity for purposes of determining the Net Book Value of Tangible Assets.

Net GloBE Income of a jurisdiction is defined in Article 5.1.2.

Net GloBE Loss of a jurisdiction is the nil or negative amount, if any, computed in accordance with the following formula:

Where: (a) the GloBE Income of all Constituent Entities is the sum of the GloBE Income of all Constituent Entities located in the jurisdiction determined in accordance with Chapter 3 for the Fiscal Year; and (b) the GloBE Losses of all Constituent Entities is the sum of the GloBE Losses of all Constituent Entities located in the jurisdiction determined in accordance with Chapter 3 for the Fiscal Year.

Net Taxes Expense means the net amount of:

(a) any Covered Taxes accrued as an expense and any current and deferred Covered Taxes included in the income tax expense, including Covered Taxes on income that is excluded from the GloBE Income or Loss computation;

(b) any deferred tax asset attributable to a loss for the Fiscal Year;

(c) any Qualified Domestic Minimum Top-up Tax accrued as an expense;

(d) any taxes arising pursuant to the GloBE rules accrued as an expense; and

(e) any Disqualified Refundable Imputation Tax accrued as an expense.

Non-profit Organisation means an Entity that meets all of the following criteria:

(a) it is established and operated in its jurisdiction of residence: (i) exclusively for religious, charitable, scientific, artistic, cultural, athletic, educational, or other similar purposes; or (ii) as a professional organisation, business league, chamber of commerce, labour organisation, agricultural or horticultural organisation, civic league or an organisation operated exclusively for the promotion of social welfare;

(b) substantially all of the income from the activities mentioned in paragraph (a) is exempt from income tax in its jurisdiction of residence;

(c) it has no shareholders or members who have a proprietary or beneficial interest in its income or assets;

(d) the income or assets of the Entity may not be distributed to, or applied for the benefit of, a private person or non-charitable Entity other than: (i) pursuant to the conduct of the Entity’s charitable activities; (ii) as payment of reasonable compensation for services rendered or for the use of property or capital; or (iii) as payment representing the fair market value of property which the Entity has purchased, and

(e) upon termination, liquidation or dissolution of the Entity, all of its assets must be distributed or revert to a Non-profit Organisation or to the government (including any Governmental Entity) of the Entity’s jurisdiction of residence or any political subdivision thereof;

but does not include any Entity carrying on a trade or business that is not directly related to the purposes for which it was established.

Non-profit Organisation

69. A Non-profit Organisation is one of the categories of Excluded Entities under Article 1.5.1. The definition of Non-profit Organisation is based on paragraph h) of the definition of “Active Non-Financial Entity (NFE)” included in Section VIII (Defined Terms) in the Standard for Automatic Exchange of Financial Account Information in Tax Matters.

70. Paragraphs (a) of the definition sets out the general purposive criteria of the Non-Profit Organisation definition. A Non-Profit Organisation is an Entity established and operated in its jurisdiction of residence exclusively for religious, charitable, scientific, artistic, cultural, athletic, educational, or other similar purposes such as public health, the advancement and protection of human rights or animal rights, or environmental protection. It also includes a professional organisation, business league, chamber of commerce, labour organisation, agricultural or horticultural organisation, civic league or an organisation operated exclusively for the promotion of social welfare or other similar purposes. A Non-Profit Organisation is resident in the jurisdiction in which it is created and managed.

71. Paragraphs (b) and (c) require that substantially all of the Entity’s income is tax-exempt for local tax purposes and that the Entity has no shareholders or members with a beneficial interest in its income or assets.

72. Paragraph (d) of the definition sets the principle that the income or assets of the Entity may not be distributed or applied for the benefit of a private person or a non-charitable Entity. It then states three exceptions.

a.) The first one included in subparagraph (i) is where the distribution or benefit is pursuant to the conduct of the Entity’s charitable activities. For instance, where an Alumni foundation of a university is funding the education expenses of students that need aid.

b.) The second exception is where there is a payment of reasonable compensation for services rendered or for the use of property or capital. For instance, where an Entity (lessee) makes rental payments to a private person (lessor) for the right to use office space or other premises needed for its operation.

c.) The third exception covers the situation in which the Entity makes a payment to private person representing the fair market value of property which the entity has purchased. For example, where an organisation buys immovable property from a private person at fair market value to establish its offices.

73. Paragraph (e) of the definition ensures that if the Entity disappears its assets are transferred to another Non-profit Organisation or to the Government (including a Governmental Entity). It states that upon termination, liquidation or dissolution of the Entity, all of its assets must be distributed or revert to a Nonprofit Organisation or to the government (including any Governmental Entity) of the Entity’s jurisdiction of residence or any political subdivision thereof.

74. The analysis to be made under paragraph (e) has to take into account, for example, the articles of incorporation of the Entity or any other arrangement, as well as the applicable provisions and guidance under domestic law, that determines the persons or Entities that have the rights of the assets when it is terminated, liquidated or dissolved.

75. The last part of the definition of Non-profit Organisation includes a general condition that disqualifies any Entity that carries on a trade or business that is not directly related to the purposes for which it was established. For example, an Entity that sells shirts or other products with its logo as part of its activities to raise funds for the organisation would not be disqualified by this condition because such business is related to the purposes for which it was established. On the other hand, an Entity that is exclusively dedicated on selling products would not qualify under this condition even if it gives up its profits to a good cause. An Entity that meets the definition of a Non-Profit Organisation may be the UPE of an MNE Group. However, an Entity that simply serves as the holding company for an internationally operating commercial business will not qualify as a Non-profit Organisation merely because it is classified as a nonprofit foundation or similar under local tax rules.

Non-Qualified Refundable Tax Credit means a tax credit that is not a Qualified Refundable Tax Credit but that is refundable in whole or in part.

Non-qualifying Gain or Loss means the lesser of the gain or loss of the disposing Constituent Entity arising in connection with a GloBE Reorganisation that is subject to tax in the disposing Constituent Entity’s location and the financial accounting gain or loss arising in connection with the GloBE Reorganisation.

Number of Employees, for the purposes of the UTPR percentage, means the total number of employees on a full-time equivalent (FTE) basis of all the Constituent Entities resident for tax purposes in the relevant tax jurisdiction. For this purpose, independent contractors participating in the ordinary operating activities of the Constituent Entity are reported as employees. With regard to Permanent Establishments, employees should be allocated to the tax jurisdiction in which the Permanent Establishment is located when the payroll costs of such employees are included in the separate financial accounts of that Permanent Establishment as determined by Article 3.4.1 and adjusted in accordance with 3.4.2. The Number of Employees attributed to the tax jurisdiction of a Permanent Establishment shall not be taken into account for the Number of Employees of the tax jurisdiction of the Main Entity.

Number of Employees

76. The Number of Employees is used for purposes of determining a UTPR jurisdiction’s UTPR percentage pursuant to Article 2.6.

77. Under the definition set out in Article 10.1 of the GloBE Rules, the Number of Employee means: “…the total number of employees on a full-time equivalent (FTE) basis of all the Constituent Entities resident for tax purposes in the relevant tax jurisdiction. For this purpose, independent contractors participating in the ordinary operating activities of the Constituent Entity are reported as employees…”

78. The definition used for the Number of Employees is in line with that provided in the report on BEPS Action 13 for purposes of CbCR. The Number of Employees is computed as the total number of employees on a full-time equivalent basis and may be reported as of the year-end, on the basis of average employment levels for the year, or on any other basis consistently applied across tax jurisdictions and from year to year, provided that such basis allows to assess the total number of employees on a full-time equivalent basis for the relevant Fiscal Year. Using a full time equivalent basis addresses the fact that employees may be employed by several Constituent Entities or may be shared between a Main Entity and its PE. It also addresses potential significant changes in the scope of employees at the jurisdictional level, e.g. because of the transfer of a Constituent Entity. In addition, reasonable rounding or approximation of the number of employees is permissible, providing that such rounding or approximation does not materially distort the relative distribution of employees across the various tax jurisdictions. Consistent approaches should be applied from year to year and across entities. More details will be provided in connection with the guidance on filing obligations developed as part of the GloBE Implementation Framework.

79. The Number of Employees refers to all employees, including independent contractors participating in the ordinary operating activities of the Constituent Entities, like the definition of Eligible Employees provided under the GloBE Rules. Unlike BEPS Action 13, which provides that those independent contractors may be reported as employees for purposes of CbCR, the definition used for Number of Employees always takes these independent contractors into account when they participate in the ordinary operating activities of the Constituent Entity. This is because independent contractors that participate in the ordinary operating activities of the Constituent Entity make as much of a contribution to substance as employees and are therefore counted as such for purposes of determining a jurisdiction’s UTPR Percentage. For instance, an independent contractor that is hired by a Constituent Entity to replace an employee during a leave of absence due to illness participates in the ordinary operating activities of that Constituent Entity. The Filing Constituent Entity bears the burden of demonstrating the extent to which independent contractors participate in the ordinary operating activities of a Constituent Entity. The Number of Employees is computed on a jurisdictional basis for all Constituent Entities located in a given jurisdiction and also includes employees attributed to PEs. The Number of Employees to be reported in the jurisdiction in which the PE is situated is the number of employees for which the payroll costs are included in the separate financial accounts (or that would have been included in the separate accounts) of that PE under the same principles as determined by Article 3.4.1 and adjusted in accordance with 3.4.2. This requirement is in line with the approach taken for purposes of the payroll carve-out under the Substance-based Income Exclusion.

80. The employees are allocated to the jurisdictions where the Constituent Entities or the PEs that bear the relevant salary expense are located, without any consideration of the location where the employees perform their activity. Unlike what is required for the Eligible Employees referred to in Article 5.3.3 for purposes of the computation of the Substance-based Income Exclusion, there is no requirement that the employees of a Constituent Entity (including a PE) perform activities for the MNE Group in the jurisdiction of the Constituent Entity for purposes of determining the Number of Employees taken into account to compute the UTPR Percentage of that jurisdiction. Similarly, the activities that those employees perform are not relevant for purposes of determining to which Constituent Entity the Number of Employees shall be allocated. In particular, an employee that is employed by a Constituent Entity that renders services to another Constituent Entity is counted as an employee of the former Constituent Entity.

OECD Model Tax Convention means the OECD (2017), Model Tax Convention on Income and on Capital: Condensed Version 2017, OECD Publishing, Paris.

Other Comprehensive Income means items of income and expense that are not recognised in profit or loss as required or permitted by the Authorised Financial Accounting Standard used in the Consolidated Financial Statements. Other Comprehensive Income is usually reported as an adjustment to equity in the statement of financial position (balance sheet).

Ownership Interest means any equity interest that carries rights to the profits, capital or reserves of an Entity, including the profits, capital or reserves of a Main Entity’s Permanent Establishment(s).

Ownership Interest

81. The term Ownership Interest is used throughout the GloBE Rules. It is relevant for determining membership in a Group and MNE Group and a Parent Entity’s Allocable Share of an LTCE’s Top-up Tax, among other things. It means any equity interest that carries rights to the profits, capital or reserves of an Entity. It also refers to the interest that a Main Entity has in the profits, capital or reserves of its Permanent Establishment(s).The term Ownership Interest includes an equity interest in a Flow-Through Entity, such as a partnership or trust, that carries rights to the profits, capital or reserves of the Flow-Through Entity or a PE of the Flow-Through Entity. Note that an equity interest only needs to hold a right to any one of profits, capital or reserves; thus, for example, an equity interest which only carries rights to capital and no other rights is still an equity interest for the purposes of the GloBE Rules. Ownership Interests often carry voting rights, but some Ownership Interests may not carry voting rights.

82. Ownership Interests may carry rights to profits and capital or reserves in different percentages. For example, an Ownership Interest may carry a right to 20% of the profits of an Entity but only 10% of the capital of the Entity. In places, the GloBE Rules specify the particular right of the Ownership Interest that is relevant for determining the applicability of a certain rules, e.g., the definition of a POPE.

83. Where the Model Rules do not discuss a specific right, such as in the definitions of JV, MOPE and Stapled Structure, then equal regard should be given to each class of relevant economic right (i.e. profits, capital or reserves). This is because, without a specified right, all have equal importance. For example, assume Entity A issues Ownership Interests of two types, profit units which carry equal rights to the profits of the entity and capital units which carry equal rights to the capital of the entity in liquidation. These units are held by 3 other entities, B, C and D. Entity B holds 50% of the issued Profit Units and 80% of the issued capital units. Entity C holds 50% of the profit units. Entity D holds the remaining 20% of capital units. Entity B’s Ownership Interest amounts to the average of its Ownership Interests in Entity A, (½ x 50%) + (½ x 80%) = 65%. Entity C has 25% of the Ownership Interest in A, (½ x 50%) + (½ x 0). Entity D has the remaining 10% (½ x 0) + (½ x 20%).

84. However, under Article 3.5.1(b), Financial Accounting Net Income or Loss is allocated to Constituent Entity-owners in accordance with their Ownership Interests and in this case it is appropriate to only consider the rights to profits carried by their Ownership Interests. This is because 3.5.1(b) is specifically concerned with the allocation of Financial Accounting Net Income, which makes rights to profit the natural metric.

85. The definition uses the term equity interest to distinguish between an Ownership Interest and other rights to the profits, capital, or reserves of an Entity, such as profit-sharing agreements with employees that do not carry any equity rights to the Entity or creditors rights to compel sale certain assets to satisfy an obligation of the Entity that is in default. An equity interest is an interest that is accounted for as equity under the financial accounting standard used in the preparation of the Consolidated Financial Statements. Similarly, whether a Constituent Entity is the owner of an equity interest, e.g. shares of stock that have been loaned to another person in connection with a short sale or stock sold with a repurchase obligation, is determined based on the accounting treatment of the interest in the Consolidated Financial Statements. A financial instrument issued by one Constituent Entity and held by another Constituent Entity in the same MNE Group must be classified as debt or equity consistently for both the issuer and holder and accounted for accordingly in the computation of their GloBE Income or Loss. To the extent the Constituent Entities have classified the instrument differently under the relevant accounting standard(s), the classification adopted by the issuer should be applied by the issuer and the holder for GloBE purposes. Aligning the classification of the instrument ensures that no amount in respect of a financial instrument shall be treated as an Excluded Dividend to the extent that another Constituent Entity in the same MNE Group that issued the instrument treats the payment as an expense in the computation of its GloBE Income or Loss. To the extent the issuer classifies the relevant instrument as a debt for accounting purposes, the MNE Group will still need to consider the application of Article 3.2.7.

As part of the Agreed Administrative Guidance from 2 February 2023 paragraph 85 of the commentaries where elaborated with: “A financial instrument issued by one Constituent Entity and held by another Constituent Entity in the same MNE Group must be classified as debt or equity consistently for both the issuer and holder and accounted for accordingly in the computation of their GloBE Income or Loss. To the extent the Constituent Entities have classified the instrument differently under the relevant accounting standard(s), the classification adopted by the issuer should be applied by the issuer and the holder for GloBE purposes. Aligning the classification of the instrument ensures that no amount in respect of a financial instrument shall be treated as an Excluded Dividend to the extent that another Constituent Entity in the same MNE Group that issued the instrument treats the payment as an expense in the computation of its GloBE Income or Loss. To the extent the issuer classifies the relevant instrument as a debt for accounting purposes, the MNE Group will still need to consider the application of Article 3.2.7. “

Parent Entity means an Ultimate Parent Entity that is not an Excluded Entity, an Intermediate Parent Entity, or a Partially-Owned Parent Entity.

Parent Entity’s Inclusion Ratio is defined in Article 2.2.2.

Partially-Owned Parent Entity means a Constituent Entity (other than a Ultimate Parent Entity, Permanent Establishment, or Investment Entity) that:

(a) owns (directly or indirectly) an Ownership Interest in another Constituent Entity of the same MNE Group; and

(b) has more than 20% of the Ownership Interests in its profits held directly or indirectly by persons that are not Constituent Entities of the MNE Group.

Passive Income means income included in GloBE Income that is:

(a) a dividend or dividend equivalents;

(b) interest or interest equivalent;

(c) rent;

(d) royalty;

(e) annuity; or

(f) net gains from property of a type that produces income described in paragraphs (a) to (e),

but only to the extent a Constituent Entity-owner is subject to tax on such income under a Controlled Foreign Company Tax Regime or as a result of an Ownership Interest in a Hybrid Entity.

Passive Income

86. The definition of Passive Income is used in the limitation of the push down of taxes under Article 4.3.3. The term Passive Income is defined in Chapter 10 to mean income that is: (a) a dividend or dividend equivalents; (b) interest or interest equivalent; (c) rent; (d) royalty; (e) annuity (i.e., a contractual entitlement to payments over a period of time); or (f) net gains from property of a type that produces income described in (a) to (e). Items of Passive Income are only subject to a limitation on the pushdown of taxes to the extent a Constituent Entity-owner is subject to tax on such income under a CFC Tax Regime or as a result of an Ownership Interest in a Hybrid Entity.

87. The list of Passive Income items is intended to be a bright-line test that focuses on mobile payments with a readily identifiable character. This definition of Passive Income does not include any test of whether an item of income is earned as part of an active business. An active business test has been left out of the definition of Passive Income in order to avoid the need to make qualitative judgments which could possibly lead to inconsistencies in the application of the ETR calculations. The definition of Passive Income agreed by the Inclusive Framework for the purposes of the GloBE Rules is therefore a special purpose definition and should not be interpreted as expressing a view on the appropriate scope of income that should be subject to charge under a CFC rule. This definition of Passive Income, while broad, is appropriate in the context of the GloBE Rules since it is being used to constrain the blending effect of taxes paid in respect of a CFC or hybrid entity. This is not a definition which would necessarily be considered appropriate in any other circumstances.

Pension Fund means:

(a) an Entity that is established and operated in a jurisdiction exclusively or almost exclusively to administer or provide retirement benefits and ancillary or incidental benefits to individuals: i. regulated as such by that jurisdiction or one of its political subdivisions or local authorities; or ii. those benefits are secured or otherwise protected by national regulations and funded by a pool of assets held through a fiduciary arrangement or trustor to secure the fulfilment of the corresponding pension obligations against a case of insolvency of the MNE Group; and

(b) a Pension Services Entity.

Pension Fund

88. A Pension Fund is an Excluded Entity in accordance with Article 1.5.1. Under paragraph (a), Pension Fund means an Entity that is established and operated exclusively or almost exclusively to administer or provide retirement benefits and ancillary and incidental benefits to individuals.

89. Paragraph (a)(i) of the definition of Pension Fund is in line with the definition of “recognised pension fund” included in Article 3, paragraph 1 i) (i) of the OECD Model Tax Convention and the Commentary on this Article 3(1) i) (i) is also relevant to this definition subject to the differences between the GloBE Rules and tax treaties (OECD, 2017[1]). The definition differs from that used in the Model Tax Convention because it has been modified to remove reference to the fund being taxable as a separate person in the jurisdiction of formation, to allow for Pension Funds formed in a different legal arrangement such as a trust. The definition applies to both public and private Pension Funds.

90. Paragraph (a)(ii) of the definition extends the definition of Pension Fund to include a fund that is not regulated, as such, but is held by a trust or other fiduciary arrangement in order to meet pension obligations that are secured or otherwise protected by national regulation. This extended definition is intended to cover any situation where an Entity is not subject to regulation as a pension fund but is established to administer or provide retirement benefits, and those benefits are secured or otherwise protected by national regulations and funded by a pool of assets held through a fiduciary arrangement or trustor to secure the fulfilment of the corresponding pension obligations. For example, this covers selfadministered pension funds where the MNE administers the funds for the benefit of its employees where these benefits are themselves secured through national regulation.

91. Paragraph (b) states that a Pension Fund includes a Pension Services Entity. The definition of a Pension Services Entity is described in further detail below.

Pension Services Entity means an Entity that is established and operated exclusively or almost exclusively: (a) to invest funds for the benefit of Entities referred to in paragraph

(a) of the definition of Pension Fund; or

(b) to carry out activities that are ancillary to those regulated activities carried out by the Entities referred to in paragraph (a) of the definition of Pension Fund provided that they are members of the same Group.

Pension Services Entity

92. The term Pension Services Entity is used in the definition of Pension Fund. It is also referred in Article 1.5.2 because it excludes Entities owned by Pension Services Entities from being Excluded Entities under Article 1.5.2.

93. This definition covers two types of Entities. The first type is described in paragraph (a), which refers to an Entity established to operate exclusively or almost exclusively to invest funds for the benefit of a Pension Fund. The second type of Pension Services Entity is one that is established and operated exclusively or almost exclusively to carry out activities that are ancillary to the regulated activities that are carried out by the Pension Fund (referred in paragraph (a) of the definition).

94. Paragraph (b) does not require the Entity to provide services directly to a Pension Fund as defined by paragraph (a) of the definition of Pension Fund. It only requires that its activities are ancillary to the regulated activities carried out by such Pension Fund and that the Entity and the Pension Fund are members of the same Group as defined by Articles 1.2.2 and 1.2.3. For example, a Pension Fund that meets the requirements of paragraph (a) of the definition of Pension Fund incorporates an Entity (A Co) to serve as its fund manager. A Co, which is responsible for the Pension Fund’s overall investing strategy, incorporates another Entity located in jurisdiction B (B Co), which provides advisory services to A Co on investment opportunities in jurisdiction B. All of the Entities involved are members of the same group. In this case, B Co is a Pension Services Entity notwithstanding that it is not providing services directly to the Pension Fund because its activities are ancillary to those of the Pension Fund.

95. The phrase “exclusively or almost exclusively” denote a facts and circumstances test that requires that all or almost all of the activities of the Entity have to be the ones referred in paragraphs (a) or (b). This phrase draws on the language used in the definition of a “recognized pension fund” in Article 3 of the OECD Model Tax Convention and its Commentary referring to such phrase (see paragraph 10.11 on the Commentary on Article 3), and its interpretation has to take into account the differences in purpose between the GloBE Rules and tax treaties (OECD, 2017).

Permanent Establishment means:

(a) a place of business (including a deemed place of business) situated in a jurisdiction and treated as a permanent establishment in accordance with an applicable Tax Treaty in force provided that such jurisdiction taxes the income attributable to it in accordance with a provision similar to Article 7 of the OECD Model Tax Convention on Income and on Capital;

(b) if there is no applicable Tax Treaty in force, a place of business (including a deemed place of business) in respect of which a jurisdiction taxes under its domestic law the income attributable to such place of business on a net basis similar to the manner in which it taxes its own tax residents;

(c) if a jurisdiction has no corporate income tax system, a place of business (including a deemed place of business) situated in that jurisdiction that would be treated as a permanent establishment in accordance with the OECD Model Tax Convention on Income and on Capital provided that such jurisdiction would have had the right to tax the income attributable to it in accordance with Article 7 of that model; or

(d) a place of business (or a deemed place of business) that is not already described in paragraphs (a) to (c) through which operations are conducted outside the jurisdiction where the Entity is located provided that such jurisdiction exempts the income attributable to such operations.

Permanent Establishment

96. The term Permanent Establishment is referred in several provisions in the GloBE Rules, including in the definition of a Constituent Entity in Article 1.3. This definition only applies for purposes of the GloBE Rules and is not intended to affect the interpretation of this term in tax treaties or domestic law or the definition of a PE for the purposes of CbCR. The definition of PE is divided into four scenarios. A PE exists for purposes of the GloBE Rules if one of these four situations arises.

Paragraph (a)

97. Paragraph (a) refers to the situation where there is a Tax Treaty in force. In this case, the GloBE Rules acknowledge the existence of a PE in accordance with the Tax Treaty provided that the source country taxes in accordance with a provision similar to Article 7 of the OECD Model Tax Convention. Paragraph (a) defines a PE as including: “a place of business (including a deemed place of business) situated in a jurisdiction and treated as a PE in accordance with an applicable Tax Treaty in force provided that such jurisdiction taxes the income attributable to it in accordance with a provision similar to Article 7 of the OECD Model Tax Convention on Income and on Capital.”

98. Paragraph (a) starts by referring to a place of business or a deemed place of business. The phrase “deemed place of business” was included for situations in which the non-resident does not have a place of business but its activities in the source jurisdiction are deemed to be a PE under the terms of the Treaty, for example a dependent agent PE.

99. A PE only exists in accordance with paragraph (a) if it exists for purposes of the Tax Treaty. Determinations by domestic courts and competent authorities are taken into account in this context. For example, paragraph (a) is met if the competent authorities of the jurisdictions involved have agreed through a mutual agreement procedure (MAP) that a PE exists in accordance with the Tax Treaty. Similarly, final rulings of domestic courts or administrative tribunals regarding the existence of a PE in accordance with a Tax Treaty are taken into account for purposes of paragraph (a).

100. The phrase “applicable Tax Treaty in force” refers to the case where a Tax Treaty has entered into force and its provisions have come into effect with respect of the tax in question. For instance, if a Tax Treaty enters into force in year 1 and comes into effect in year 2, then paragraph (a) would not apply for year 1.

101. Paragraph (a) also requires that the source jurisdiction taxes the income attributable to the PE in accordance with a provision similar to Article 7 of the OECD Model Tax Convention. For example, a Constituent Entity resident in Country R is dedicated to the operation of aircraft in international traffic and has an office in Country S through which it carries on part of its business. Assume that the R-S treaty follows the OECD Model Tax Convention. In accordance with Article 5 of the treaty, this Constituent Entity has a PE in Country S. However, by virtue of Article 7(4) and Article 8 of the treaty, Country S is not able to tax the profits of the PE. In that case, a PE does not exist for purposes of the GloBE Rules in accordance with paragraph (a) regardless that it meets the definition of a PE of the treaty.

102. The phrase “a provision similar to Article 7 of the OECD Model Tax Convention” ensures that the source country taxes the income as income attributable to a PE without requiring the relevant provisions of the Tax Treaty to replicate the language or outcomes Article 7 of the 2017 OECD Model Tax Convention. For instance, the Tax Treaty could include Article 7 of the OECD Model Tax Convention as it read before July 22, 2010 or the one included in 2017 UN Model Double Taxation Convention between Developed and Developing Countries.

Paragraph (b)

103. Paragraph (b) refers to the taxation of income attributable to a PE or a similar concept (e.g. US trade or business) in accordance with domestic law in cases where there is no Tax Treaty in force between the residence and source jurisdictions. Stated differently, it refers to the case where jurisdictions have adopted a definition and taxation rules for a PE (or a similar concept) into their domestic law and no Tax Treaty applies. In these situations, the GloBE Rules recognize their existence and treatment under domestic law, and therefore, considers them as PEs.

104. For example, A Co and B Co are Constituent Entities resident in Country A and B respectively, and the sole partners of a partnership organized in Country C. Under the domestic law of Country C, the partnership is considered as tax transparent, and A Co and B Co are treated each as having a PE in Country C. In this case, the GloBE Rules follow the domestic law of Country C by recognizing the existence of the two PEs as two separate Constituent Entities.

105. Paragraph (b) applies where there is no applicable Tax Treaty, it defines a PE as including: “a place of business (including a deemed place of business) in respect of which a jurisdiction taxes under its domestic law the income attributable to such place of business on a net basis similar to the manner in which it taxes its own tax residents;”

106. As for paragraph (a) the paragraph (b) starts by referring to a “place of business (or a deemed place of business)”. Whether a place of business or deemed place of business exists under this paragraph is a matter of domestic law. It is irrelevant if the domestic law uses this terminology in their own definitions. However, a place of business needs to exist in the source jurisdiction to meet with this part of the sentence through which activities takes place. In the case of a “deemed place of business” a connection needs to be established in domestic law between the source jurisdiction and the activities taking place in such jurisdiction.

107. Paragraph (b) further requires that the source jurisdiction taxes the income attributable to a “domestic PE” on a net basis similar to the manner in which it taxes its own tax residents. It does not require that the “domestic PE” is taxed exactly the same as a tax resident, as long as it is taxed in a similar manner. For instance, a “domestic PE” would be taxed in a similar manner as a tax resident in the source jurisdiction regardless that the deductibility of its expenses are subject to further limitations not applicable to resident taxpayers. Furthermore, the taxable income has to be attributable to the “domestic PE”, which means that activities have to be carried out through it in the source jurisdiction. Finally, this condition excludes from paragraph (b) any source taxation based on a gross basis (e.g. a withholding tax).

Paragraph (c)

108. Paragraph (c) applies only where a jurisdiction has no CIT system, it defines a PE as including: “a place of business (including a deemed place of business) situated in that jurisdiction that would be treated as a PE in accordance with the OECD Model Tax Convention on Income and on Capital provided that such jurisdiction would have had the right to tax the income attributable to it in accordance with Article 7 of that model.”

109. A PE exists for purposes of paragraph (c) if there is a place of business or a deemed place of business in such jurisdiction that would be treated as a PE in accordance with the OECD Model Tax Convention provided that such jurisdiction would have the right to tax the income attributable to it in accordance with Article 7 of that model.

110. This Paragraph requires a hypothetical analysis of whether a PE would have existed in the jurisdiction with no CIT system (referred in this paragraph as the “source country”). The analysis proceeds as if the residence and source country had a treaty that replicates the last version of the OECD Model Tax Convention. This means that it takes into account the version of the OECD Model Tax Convention of the year in which this analysis is made. For example, a Constituent Entity located in Country A does not have a PE in the source country during the years 1 to 4 in accordance with the OECD Model Tax Convention. In year 5, the model is modified in a way that creates a PE in the source country. In this case, paragraph (c) is met in year 5.

Paragraph (d)

111. Paragraph (d) creates a PE for purposes of the GloBE Rules in situations where the jurisdiction in which a Constituent Entity is located exempts the income attributable to the operations conducted outside such jurisdiction. Paragraph (d) applies only where the PE does not fall within the previous paragraphs (a) to (c) and defines a PE as including: a place of business (or a deemed place of business) “through which operations are conducted outside the jurisdiction where the Entity is located provided that such jurisdiction exempts the income attributable to such operations.”

112. By excluding PEs already described in paragraphs (a) to (c), the definition avoids any overlap between PEs falling under this paragraph and the other types of PE listed in the paragraph above. Drawing a clear dividing line between stateless PEs under paragraph (d) and those under paragraphs (a) – (c) is important for determining the location of the PE in accordance with Article 10.2. For example, A Co is located in jurisdiction A and conducts activities in jurisdiction B through a person that habitually concludes contracts in the name of A Co. Jurisdiction B has adopted the definition of a PE of Article 5 of the OECD Model Tax Convention into its domestic law and taxes the income attributable to it. Jurisdiction A exempts the income earned by A Co through the PE. Jurisdictions A and B do not have a Tax Treaty. In this case, paragraph (b) is triggered because jurisdiction B taxes the income attributable to a PE in accordance with its domestic law. Paragraph (d) is also triggered because jurisdiction A exempts the income attributable to the operations carried out through the PE. In this case, a PE exists in jurisdiction B for purposes of the GloBE Rules. If, however, jurisdiction B does not treat an agent that habitually concludes contracts in the name its principal as giving rise to a PE under local law then paragraph (d) would apply, but the PE would be stateless for the purposes of the GloBE Rules, meaning that the income of the PE would be subject to the GloBE Rules on a standalone basis without the ability to blend its income with other Constituent Entities located in jurisdiction B.

113. The first part of the definition refers to “a place of business (or a deemed place of business)”. It is irrelevant if the jurisdiction where the Constituent Entity (e.g., Main Entity) is located considers the existence of a place of business (or deemed place of business) in another jurisdiction or if one exists in accordance with domestic law of a source jurisdiction or tax treaties. The requirement under paragraph (d) is that such jurisdiction is exempting the income generated through foreign operations.

114. Paragraph (d) refers to a place of business (or a deemed place of business) through which operations are conducted outside the jurisdiction where the entity is located where the income attributable to those operations is exempt from tax. This language is intended to ensure that this paragraph only applies where exemption is attributable to the fact that the operations are treated as conducted by the Constituent Entity outside the jurisdiction. For example, if a shareholder of a foreign subsidiary benefits from a foreign dividend exemption (e.g., participation exemption), paragraph (d) would not be triggered because the income is not exempted on the grounds that the shareholder is carrying out operations in the other jurisdictions related to the dividend.

Policy Disallowed Expenses means:

(a) expenses accrued by the Constituent Entity for illegal payments, including bribes and kickbacks; and

(b) expenses accrued by the Constituent Entity for fines and penalties that equal or exceed EUR 50 000 (or an equivalent in the functional currency in which the Constituent Entity’s Financial Accounting Net Income or Loss was calculated).

Portfolio Shareholding means Ownership Interests in an Entity that are held by the MNE Group and that carry rights to less than 10% of the profits, capital, reserves, or voting rights of that Entity at the date of the distribution or disposition.

Prior Period Errors and Changes in Accounting Principles means all changes in the opening equity at the beginning of the Fiscal Year of a Constituent Entity attributable to:

(a) a correction of an error in the determination of Financial Accounting Net Income in a previous Fiscal Year that affected the income or expenses includible in the computation of GloBE Income or Loss for such Fiscal Year, except to the extent such error correction resulted in a material decrease to a liability for Covered Taxes subject to Article 4.6; or

(b) a change in accounting principle or policy that affects income or expenses includible in the computation of GloBE Income or Loss.

Qualified Ancillary International Shipping Income is defined in Article 3.3.3.

Qualified Domestic Minimum Top-up Tax means a minimum tax that is included in the domestic law of a jurisdiction and that:

(a) determines the Excess Profits of the Constituent Entities located in the jurisdiction (domestic Excess Profits) in a manner that is equivalent to the GloBE Rules;

(b) operates to increase domestic tax liability with respect to domestic Excess Profits to the Minimum Rate for the jurisdiction and Constituent Entities for a Fiscal Year; and

(c) is implemented and administered in a way that is consistent with the outcomes provided for under the GloBE Rules and the Commentary, provided that such jurisdiction does not provide any benefits that are related to such rules.

A Qualified Domestic Minimum Top-up Tax may compute domestic Excess Profits based on an Acceptable Financial Accounting Standard permitted by the Authorised Accounting Body or an Authorised Financial Accounting Standard adjusted to prevent any Material Competitive Distortions, rather than the financial accounting standard used in the Consolidated Financial Statements.

Qualified Domestic Minimum Top-up Tax

115. In applying the GloBE Rules in the implementing jurisdiction, both taxpayers and tax administrations may need to evaluate whether Constituent Entities in that same group are subject to a Qualified Domestic Minimum Top-up Tax in another jurisdiction in order to correctly apply GloBE Rules. Most domestic income Taxes are Covered Taxes taken into account in the ETR computation and indirectly reduce the amount of Top-up Tax computed under Article 5.2. Under Article 5.2, however, tax arising under a Qualified Domestic Minimum Top-up Tax directly reduces the amount of Top-up Tax arising under the GloBE Rules. For example, a Parent Entity with an Ownership Interest in what would otherwise be a LTCE generally will not have any liability under the IIR if that Constituent Entity is subject to a Qualified Domestic Minimum Top-up Tax that imposes the same amount of tax that would otherwise arise under the IIR.

116. Qualified Domestic Minimum Top-up Tax means a tax that applies to Excess Profits of the domestic Constituent Entities and operates to increase domestic tax liability with respect to those profits to the Minimum Rate. The tax must be implemented and administered in a way that is consistent with the outcomes provided for under the GloBE Rules and their Commentary, including the prohibition against the implementing jurisdiction providing any collateral or other benefits that are related to such domestic tax as discussed further in the Commentary to the definition of a Qualified IIR. This limitation on collateral benefits is not intended to restrict the ability of a jurisdiction to make changes to the design of its corporate tax system in light of the new international tax architecture under the GloBE Rules. Such changes to the domestic corporate tax rules consequent on the introduction of a domestic minimum tax should not be considered a benefit provided that they do not result in MNE Groups achieving overall tax outcomes that are inconsistent with the outcomes provided for under the GloBE Rules and their Commentary.

117. The fact that the minimum tax is computed based on a local Authorised Financial Accounting Standard that is different from the standard used in the Consolidated Financial Statements does not prevent the tax from being treated as a Qualified Domestic Minimum Top-up Tax, provided that the locally authorised accounting standard is either an Acceptable Financial Accounting Standard or has been adjusted to the standard used by the MNE Group in respect of any Material Competitive Distortions.

Qualified Domestic Minimum Top-up Tax

118.1 A domestic minimum tax must be functionally equivalent to the GloBE Rules to be treated as a Qualified Domestic Minimum Top-up Tax. To be considered functionally equivalent, a domestic minimum tax must be implemented and administered so that it reliably produces outcomes that are consistent with the outcomes for the jurisdiction that are produced under the GloBE Rules and Commentary. Specifically, in order to be considered functionally equivalent to the GloBE Rules, a minimum tax must be structured so that it is in line with the architecture of the GloBE Rules and does not systematically result in an incremental top-up tax for the jurisdiction that is less than what would have been determined under the GloBE Rules. The following discussion considers the extent to which a QDMTT needs to conform to the rules set out in each chapter of the Model Rules – the building blocks of the GloBE Rules – in order to achieve this functional equivalence.

Chapter 1. Scope

Small MNE Groups and domestic Groups

118.2 A QDMTT must apply to domestic Constituent Entities of MNE Groups that meet the EUR 750 million threshold in Article 1.1 of the GloBE Rules. However, consistent with the common approach, the application of a QDMTT could be extended to groups whose UPE is located in the jurisdiction but that are not within the scope of the GloBE Rules because their revenues are below the EUR 750 million threshold. A jurisdiction can apply an IIR to such groups and therefore, a jurisdiction can also apply its QDMTT to such groups. Furthermore, a QDMTT could also apply to purely domestic groups, i.e. groups with no foreign subsidiaries or branches. A QDMTT that applies to groups that are not within the scope of the GloBE Rules does not produce outcomes that would cause the QDMTT to fail functional equivalence.

Scope of Constituent Entities

118.3 In many cases, the Constituent Entities subject to tax under domestic law will correspond to the Constituent Entities located in the jurisdiction under the GloBE Rules. However, there may be some cases where an Entity or Permanent Establishment that is not subject to tax domestically is treated as a Constituent Entity for GloBE purposes. Failure to include the GloBE tax attributes of these Constituent Entities in the income, taxes, and ETR computations of the QDMTT could produce outcomes that are not functionally equivalent.

118.4 In order to produce functionally equivalent outcomes, a QDMTT must apply with respect to the Constituent Entities of an MNE Group that are located in the jurisdiction as determined under the GloBE Rules. This means that:

a.) the definition of Ultimate Parent Entity, MNE Group, and Constituent Entity in the QDMTT need to correspond with the definitions in the GloBE Rules; and

b.) the QDMTT must compute the tax liability for the jurisdiction by taking into account the income and covered taxes of Constituent Entities that are located in the jurisdiction as determined under the GloBE Rules.

Thus, consistent with the rules of Article 3.4, the QDMTT should take into account the income and covered taxes of Constituent Entities located in the jurisdiction and only those Constituent Entities. For example, unless the circumstances trigger the application of Article 3.4.5, GloBE tax attributes of Permanent Establishments located in another jurisdiction should not be taken into account, even where the jurisdiction typically imposes tax on the Main Entity in respect of income earned through a foreign Permanent Establishment.

118.5 Although the tax must apply with respect to all the relevant Constituent Entities, liability for the tax need not be imposed on Entities that are not otherwise subject to tax under the laws of the jurisdiction. Liability for the tax can be imposed on a Constituent Entity that is (or Constituent Entities that are) otherwise subject to tax under the laws of the jurisdiction. To reduce compliance burden for the MNE Group, a QDMTT could be designed for all the liability for the tax to be imposed on a single Constituent Entity of an MNE Group that is subject to tax under the laws of the jurisdiction even though there could be other Constituent Entities in the same MNE Group that are also subject to tax under the laws of the jurisdiction. See discussion of Charging Provisions below.

MOCEs

118.6 Minority Owned Constituent Entities (MOCEs) are subject to special treatment under the GloBE Rules. Although they are Constituent Entities, they are separated from the other Constituent Entities in the jurisdiction and their ETR and Top-up Tax is computed separately. This separate ETR and Top-up computation will often produce a different outcome than would a blended computation, i.e. a single computation based on the income and covered taxes of all Constituent Entities in the jurisdiction). Thus, in order to be functionally equivalent, a QDMTT must determine a separate ETR and Top-up Tax amount for MOCEs.

Joint Ventures

118.7 Under Article 6.4, the ETR and Top-up Tax for Joint Ventures and JV Subsidiaries located in each jurisdiction are computed separately from the ETR and Top-up Tax of the Constituent Entities in the same jurisdiction. As the results of these computations may be different from the results of a blended ETR and Top-up Tax computation, a QDMTT must also determine a separate ETR and Top-up Tax amount for Joint Ventures and JV Subsidiaries located in the jurisdiction in order to be functionally equivalent to the GloBE Rules.

118.8 The GloBE Rules do not impose Top-up Tax on Joint Ventures and JV Subsidiaries but rather require the MNE Group to allocate such Top-up Tax to a Constituent Entity of the MNE Group under the IIR or the UTPR. As illustrated in paragraph 118.10, jurisdictions could design their QDMTT so that it only applies to MNE Groups where all the Constituent Entities located in the jurisdictions are wholly-owned by the UPE or a POPE for the entire Fiscal Year. In that case, the QDMTT will not apply to Joint Ventures and JV subsidiaries located in the jurisdiction.

Stateless Flow-through Entities and PEs

118.8.1 Stateless Constituent Entities are subject to a stand-alone ETR and Top-up Tax computation for GloBE purposes. A QDMTT does not need to apply to Stateless Constituent Entities to be functionally equivalent to the GloBE Rules. In the case of Flow-through Entities that are Stateless Constituent Entities, however, jurisdictions are free to impose the QDMTT on these Entities when they are created under the domestic law of the jurisdiction. In the case of Permanent Establishments that are Stateless Constituent Entities, jurisdictions are free to impose the QDMTT on these Entities provided that the place of business (or deemed place of business) is located therein and either there is no tax treaty applicable or there is an applicable tax treaty and the jurisdiction where the place of business (or deemed place of business) is located has the right to tax in accordance with such treaty. In both cases, these Entities shall be subject to separate ETR and Top-up Tax calculations and shall still be treated as Stateless Constituent Entities for GloBE and QDMTT purposes, regardless of whether they are subject to a QDMTT charge.

118.8.2 A Flow-through Entity that is the UPE of the MNE Group is located in the jurisdiction where it is created in accordance with Article 10.3.2(a). Jurisdictions imposing a QDMTT must take into account the GloBE Income or Loss and Covered Taxes of these Entities in the jurisdictional computations to the extent that they are not reduced in accordance with Article 7.1. QDMTT jurisdictions do not need to impose a QDMTT charge on these Entities to be functionally equivalent to the GloBE Rules if these Entities are not tax residents in that jurisdiction. The QDMTT charge can be allocated to other Constituent Entities located in the jurisdiction. Alternatively, a jurisdiction can decide to impose the QDMTT charge on the Flow-through UPE or introduce a different mechanism to ensure that the tax liability that arises with respect to the UPE is enforceable. If a jurisdiction does not charge the QDMTT in cases where the Flow-through UPE is the only Constituent Entity located in the jurisdiction (to the extent Article 7.1 does not reduce its GloBE Income to zero), the Top-up Tax determined for the jurisdiction may be subject to the UTPR.

118.8.3 A Flow-through Entity that is required to apply the IIR is located in the jurisdiction where it is created for purposes of applying the IIR in accordance with Article 10.3.2(a). If a jurisdiction is imposing a liability under the IIR on these Entities (i.e. treating it as a taxpayer only for GloBE purposes), it may do the same with respect to the QDMTT. For purposes of a QDMTT, Entities required to apply an IIR should also be considered to be located in the QDMTT jurisdiction if they are created in such jurisdiction. This means that if the Financial Accounting Net Income or Loss has been allocated to those Entities under Article 3.5 and Covered Taxes have been allocated to such Entities in accordance with Chapter 4, such income or loss, and taxes shall be blended in the QDMTT jurisdiction. However, QDMTT jurisdictions do not need to impose a QDMTT charge on these Entities to be functionally equivalent to the GloBE Rules if these Entities are not tax residents in that jurisdiction. The QDMTT charge can be allocated to other Constituent Entities located in the jurisdiction. Alternatively, a jurisdiction can decide to impose the QDMTT charge on the Flow-through Entity or introduce a different mechanism to ensure that the tax liability that arises with respect to the Entity is enforceable.

Chapter 2.

Charging provisions

118.9 The charging provisions in Article 2 are not suited to a QDMTT because the IIR and UTPR primarily apply with respect to the income of foreign Constituent Entities. In contrast, a QDMTT applies exclusively with respect to domestic Constituent Entities. In lieu of the Article 2 charging provisions, a QDMTT should impose a Top-up Tax on one or more domestic Constituent Entities with respect to the Excess Profits of all domestic Constituent Entities, including the domestic Parent Entity.

118.10 The Jurisdictional Top-up Tax that is subject to the QDMTT is based on the whole amount of the Jurisdictional Top-up Tax computed under Article 5.2.3 of the GloBE Rules, irrespective of the Ownership Interests held in the Constituent Entities located in the QDMTT jurisdiction by any Parent Entity of the MNE Group. The same principle applies where the QDMTT is computed with respect to Minority-Owned Constituent Entities, Joint Ventures, and JV Subsidiaries, irrespective of the fact that those Entities are subject to separate ETR and Top-up Tax computations under the GloBE Rules and the QDMTT. In some situations, imposing the whole amount of the Jurisdictional Top-up Tax under a QDMTT will result in a greater tax charge than the tax charge that would otherwise have been imposed under the GloBE Rules. This could arise, for example in the situation where the MNE Group is subject to a QIIR in respect of the Constituent Entities located in the QDMTT jurisdiction and the Parent Entity imposing the IIR does not own 100% of the Ownership Interests in those Constituent Entities. Jurisdictions may choose to implement rules that apply their QDMTT only to Groups where all of the Constituent Entities located in that jurisdiction are 100% owned by the UPE or a POPE for the entire Fiscal Year. Jurisdictions that limit the application of their QDMTT to MNE Groups where all the Constituent Entities located in the jurisdiction are 100% owned by the UPE or POPE for the entire Fiscal Year shall similarly not apply their QDMTT to Joint Ventures, JV Subsidiaries and Minority-Owned Constituent Entities located in the jurisdiction.

118.11 This guidance does not require the QDMTT tax liability arising from Low-Taxed Constituent Entities to be allocated to or among those Constituent Entities in any particular manner, so long as all the tax liability is allocated to one or more Constituent Entities that are subject to tax in the jurisdiction. Tax arising under the QDMTT reduces (or eliminates) the GloBE Top-up Tax for the jurisdiction as a whole. When the QDMTT applies to a member of the JV Group or Minority-owned Subgroup (which includes a standalone JV and Minority-owned Constituent Entity) the tax liability could be allocated directly to any member of the JV Group or Minority-owned Subgroup, or to a Constituent Entity located in the same jurisdiction. In the case of a tax liability arising from JV Groups, QDMTT jurisdictions that allocate the tax liability to Constituent Entities of the main Group should have a mechanism to avoid double taxation in cases where both joint venturers are MNE Groups subject to the GloBE Rules or a QDMTT. If there is GloBE Top-up Tax remaining after subtracting the QDMTT, the remainder is allocated among Constituent Entities under the GloBE Rules, including Articles 5.2.4 and 5.2.5. Thus, it is not necessary to allocate both the IIR Top-up Tax and the QDMTT tax Entity-by-Entity and then subtract the QDMTT tax allocated to an Entity from the IIR Top-up Tax allocated to the that Entity.

118.12 In designing the charging provisions of a QDMTT, jurisdictions should ensure that the legal liability for the tax is enforceable against at least one Constituent Entity in that jurisdiction. For example, a jurisdiction could impose joint and several liability for QDMTT tax on all the domestic Constituent Entities and collect it from any of the Constituent Entities without affecting the outcome under the GloBE Rules. In other cases, however, the laws of a jurisdiction may not permit imposition of tax on one of the Entities in respect of the average low-tax outcome of other Entities. In that case, the jurisdiction would need to allocate the QDMTT tax liability on a basis that complies with its domestic legal framework. In the case of a QDMTT that applies on a Constituent Entity-by-Constituent Entity basis, the QDMTT jurisdiction could allocate the QDMTT tax charge only to Constituent Entities that have an ETR lower than the Minimum Rate. If jurisdictional blending applies, on the other hand, the QDMTT tax charge could be allocated pursuant to the formula in Article 5.2.4 of the GloBE Rules or based on the ratio of the Excess Profits of the Constituent Entity to the Excess Profit of all Constituent Entities located in the jurisdiction. To avoid that minority investors bear the QDMTT tax charge, jurisdictions could also decide to allocate it exclusively to wholly-owned Constituent Entities. These examples are only intended to provide possible design options and do not limit the ability for jurisdictions to allocate the QDMTT tax charge in any manner they deem appropriate. Moreover, the allocation of the QDMTT tax charge among Constituent Entities is not binding on another jurisdiction for purposes of applying its local tax rules, including CFC Tax Regimes.

118.13 Finally, the definition of a QDMTT prohibits the jurisdiction from providing any benefits that are related to the QDMTT or the GloBE Rules. The assessment of whether such benefits have been provided should be in line with an equivalent assessment made in respect of a qualified IIR or UTPR and prevents a QDMTT from being refunded directly or indirectly to the MNE Group. Crediting or refunding of tax paid pursuant to a tax regime that meets the definition of Qualified Imputation Tax in chapter 10 of the GloBE Rules will not be treated as giving rise to a benefit that would prevent it from being a QDMTT. The Inclusive Framework will consider providing further guidance in relation to the identification of benefits related to a QDMTT.

Chapter 3. GloBE income or loss

Financial accounting standard

118.14 The QDMTT definition provides that a jurisdiction may require income or loss for the jurisdiction to be computed using an Authorised Financial Accounting Standard that differs from the one used in the Consolidated Financial Statements. This part of the definition recognises that the local tax authority would likely be more familiar with accounting standards that are permissible in the jurisdiction than one applied by a UPE in another jurisdiction. The jurisdiction can, of course, require or permit the computation of the income or loss based on the accounting standard used in the Consolidated Financial Statements.

118.15 The QDMTT definition allows for the use of an Acceptable Financial Accounting Standard or for the use of an Authorized Financial Accounting Standard that is not an Acceptable Financial Accounting Standard but is adjusted as necessary to prevent Material Competitive Distortions. The Inclusive Framework may consider that a more robust definition of Material Competitive Distortion is necessary in the case of a QDMTT allows for the use of an Authorized Financial Accounting Standard that is not an Acceptable Financial Accounting Standard. The threshold for Material Competitive Distortions is EUR 75 million in a Fiscal Year for the entire MNE Group. This threshold was developed based on the premise that the Consolidated Financial Statement (CFS) would be prepared, in full, using the particular accounting standard. Thus, this threshold should not apply in the context of a QDMTT applicable to a single jurisdiction and the Inclusive Framework will consider providing further guidance on the determination of a lower threshold to provide for outcomes that are consistent with the GloBE Rules. For example, the Inclusive Framework could consider whether the threshold could be scaled to the jurisdiction based on the relative amount of the MNE Group’s revenues in the jurisdiction.

Local vs. reporting currency

118.16 Tax arising under a QDMTT will be paid in local currency. This suggests that the relevant computations should be performed in local currency or in accordance with the jurisdiction’s ordinary tax rules for foreign currency translation. However, the GloBE Rules do not require the MNE to compute Top-up Tax for a jurisdiction based on the local currency of the jurisdiction. Thus, if the jurisdiction requires the QDMTT computations on a different basis this could, as explained below, produce outcomes that vary on an annual basis from the GloBE Rules.

118.17 Authorised Financial Accounting Standards permit MNE Groups to employ either of two basic paradigms for converting transactions from the local functional currency to the CFS reporting currency. Under one, transactions conducted in the functional currency are contemporaneously translated and recorded in the financial accounts in the reporting currency. Under the other, transactions are recorded in the financial accounts in the functional currency and translated to the CFS reporting currency in the consolidation process. The results of computing a Constituent Entity’s income or loss using these different paradigms will be the same over time but can differ from year to year. However, neither approach will be consistently more or less favourable for the MNE Group because currency movements are unpredictable. Determining the relevant financial amounts for GloBE and QDMTT purposes using a different currency conversion paradigm would be a difficult and cumbersome task, and because the computations that are not in line with the MNE Group’s financial accounting paradigm would not be subject to the normal financial accounting audit procedures, it is less reliable. Determining these amounts based on foreign currency translation rules in the local tax rules would be equally complex and would often produce different outcomes.

118.18 To ensure functionally equivalent outcomes, the underlying computations should be based on the currency translation paradigm that is used for the GloBE Information Return. Because the different currency translation paradigms can produce different results year-to-year, the only way to ensure functional equivalence on an annual basis is to use the same paradigm for both the GloBE and QDMTT computations. This will also simplify the compliance and administration of the QDMTT.

118.19 This does not mean, however, that the QDMTT return has to be prepared using the currency reflected in the GloBE Information Return. A jurisdiction may require the MNE Group to translate the numbers reported in the GloBE Information Return into the local currency using a single translation rate for purposes of preparing the QDMTT return. However, in such cases, the accounting numbers that need to be translated are the numbers that are reflected in the GloBE Information Return, which may have implications as to the filing deadline for a QDMTT return.

Permanent differences

118.20 Income and tax computations generally need to mirror the GloBE Rules to ensure functional equivalence. Customization of a QDMTT is permissible, however, in two situations. First, it is permissible to make the QDMTT more restrictive than the GloBE Rules where the tighter restriction is consistent with local tax rules. For example, a jurisdiction that does not permit deduction of fines and penalties in any amount under its corporate income tax (CIT) can apply the same standard under its QDMTT. Because the GloBE Rules disallow fines and penalties in excess of EUR 50 000 only, this variation will not result in QDMTT tax that is less than the GloBE Top-up Tax. On the other hand, allowing an expense for fines and penalties in excess of EUR 50 000 will not produce functionally equivalent outcomes.

118.21 Second, a jurisdiction is not required to include adjustments in Chapter 3 that are not relevant to in the context of its domestic tax system. Some of the GloBE Rules are intended to bring an MNE Group’s GloBE Income or Loss in line with its local taxable income computations. The election to expense the amount of stock compensation allowed as a tax deduction is a good example. This election is provided because some jurisdictions allow an expense for stock-based compensation based on the value on the exercise date rather than the expected value at the time the option is granted. However, if the jurisdiction allows stock-based compensation expense only in the amount allowed for accounting purposes, no adjustment is needed to bring the GloBE and taxable income into alignment.

Income of a Permanent Establishment

118.22 Although a jurisdiction may have a taxable branch regime, its QDMTT must exclude the income or loss of a foreign Permanent Establishment from the income or loss of the Main Entity consistent with the rules of Article 3.4 in order to be considered functionally equivalent. Any lowtaxed income of a Permanent Establishment will be taxable under the QDMTT of the jurisdiction in which the PE is located (as determined under Article 10.3) or under the GloBE Rules. In accordance with and based on the principles of the GloBE rules, the Inclusive Framework will consider providing further guidance on the allocation of income to PEs under a QDMTT in particular circumstances (for example, in respect of stateless PEs or reverse hybrid entities).

Income of a Tax Transparent Entity

118.23 Under the GloBE rules, the income of a Tax Transparent Entity is allocated to its Constituent Entity-owner or a Permanent Establishment. A Constituent Entity-owner may be located in a different jurisdiction from the one in which the Tax Transparent Entity is created.

118.24 In order to be considered functionally equivalent, a QDMTT must allocate the income and taxes of a foreign or domestic Tax Transparent Entity to a Constituent Entity-owner or a Permanent Establishment located in the jurisdiction consistent with the rules in Article 3.5. Similarly, the QDMTT should exclude the income of a Tax Transparent Entity that is allocated to a foreign Constituent Entity-owner under the GloBE Rules. Without such rules, the ETR and Top-up Tax computations for the jurisdiction will routinely produce different outcomes and the QDMTT will not be functionally equivalent to the GloBE Rules.

118.25 A tax transparent UPE is located in the jurisdiction in which it is created under Article 10.3 of the GloBE Rules. A QDMTT must also include the income and taxes of a tax transparent UPE in the relevant computations if it is located in the jurisdiction, unless the QDMTT contains a provision equivalent to Article 7.1. See discussion of tax transparent UPEs below. However, if the highestlevel Constituent Entity in the jurisdiction is a Tax Transparent Entity, its income and taxes may be allocated to a foreign Constituent Entity-owner pursuant to Article 3.5. In such cases, the QDMTT must exclude the income and taxes of the Tax Transparent Entity from the relevant computations.

Chapter 4. Adjusted Covered Taxes

In general

118.26 In order for the ETR computed under the QDMTT to be functionally equivalent to the GloBE ETR for the jurisdiction, the determination of Adjusted Covered Taxes needs to be the same or more restrictive. This means that the range of taxes included in Covered Taxes needs to be the same or narrower, except as discussed below. It also means that the jurisdiction’s QDMTT must adopt deferred tax accounting rules that are consistent with the GloBE Rules in Article 4.4.

118.27 A QDMTT, however, does not need to have a GloBE Loss Election as provided in Article 4.5. This election is primarily aimed at jurisdictions that do not have a tax system at all or that do not allow loss carry-forwards. A jurisdiction with a tax system that allows loss carry-forwards can rely on the rules in Article 4.4 to achieve functional equivalence with the GloBE Rules. A jurisdiction without a tax system or a loss carry-forward may want to have a GloBE Loss Election but would not need to provide the election for its QDMTT to be functionally equivalent. This is because the lack of a GloBE Loss Election would be a restriction that invariably results in more top-up tax than would be computed under the GloBE Rules.

Cross-border taxes excluded from shareholder’s or Main Entity’s Covered Taxes

118.28 A QDMTT must exclude tax paid or accrued by domestic Constituent Entities with respect to the income of foreign Constituent Entities under its own CFC or taxable branch regimes. Taxes of the Main Entity allocated to its foreign permanent establishment shall be excluded pursuant to Article 4.3.2.(a). Further, taxes treated as Covered Taxes of the Main Entity pursuant to Article 4.3.4. must be allocated to the Main Entity under a QDMTT. Taxes of the Constituent Entity owner of foreign CFCs shall be excluded pursuant to Article 4.3.2.(c). Because these taxes are imposed on income of Constituent Entities located in another jurisdiction under the GloBE Rules, they cannot be taken into account in the ETR computation for the jurisdiction of the shareholder or Main Entity under the GloBE Rules. The same rule is necessary under a QDMTT to avoid mismatches (and doublecounting) of tax and income. The exception to this principle under the GloBE Rules is for crossborder taxes on passive income in excess of the amount allowed to be pushed down to the CFC or Hybrid Entity under Article 4.3.3. A QDMTT may follow the GloBE treatment of these taxes and allow them to be credited in the jurisdiction of the Constituent Entity-owner.

118.29 Alternatively, a jurisdiction may consider that determining the amount of domestic tax on foreign passive income is an additional and unnecessary complication and prefer to exclude all taxes that it imposes on the income of a foreign CFC or Hybrid Entity from the QDMTT’s adjusted covered taxes computation. This treatment would generally increase the likelihood that tax would arise under the QDMTT and would not produce outcomes that are systematically lower than the tax liability that would arise under the GloBE Rules. Thus, this variance would be functionally equivalent.

Cross-border taxes

118.30 For purposes of computing the ETR, a QDMTT shall exclude Covered Tax expense of: (i) a Constituent Entity-owner under a CFC Tax Regime that is allocable to a domestic Constituent Entity under Article 4.3.2(c) of the GloBE Rules; (ii) a Main Entity that is allocable under Article 4.3.2(a) to a Permanent Establishment located in the jurisdiction; (iii) a Constituent Entity-owner on income of a Hybrid Entity that is allocable to a Hybrid Entity located in the jurisdiction under Article 4.3.2(d); and (iv) a Constituent Entity-owner (e.g. net basis taxes), other than a withholding tax imposed by the QDMTT jurisdiction, that is allocable to a distributing Constituent Entity located in the jurisdiction under Article 4.3.2 (e). Withholding taxes that are described in Article 4.3.2(e) imposed by the QDMTT jurisdiction itself on distributions from a Constituent Entity located in the QDMTT jurisdiction are allocated to the distributing Constituent Entity under the QDMTT. Excluding CFC and PE taxes allows the QDMTT to operate as a simple calculation and does not require the complex calculations required in some cases to allocate CFC taxes under Article 4.3.2(c) to be reported to a jurisdiction that implements a QDMTT. Further, a specific ordering rule is aimed at attributing primary taxing rights to the jurisdiction applying the QDMTT in relation to its Constituent Entities. If the ordering rule were the opposite, so that the cross-border taxes above were credited under a QDMTT, additional computations would have been required in order to avoid the QDMTT resulting in taxation that is below the Minimum Rate. Specifically, if a QDMTT is creditable against either a tax charge imposed by the parent or main entity jurisdiction, any crediting of those taxes against a QDMTT would make the calculation of the correct amount of QDMTT problematic, due to the interaction of the two crediting mechanisms. Excluding such taxes from QDMTT calculations will ensure that this practical problem does not arise. The Inclusive Framework will monitor the interaction between the QDMTT and CFC Tax Regimes and taxable branch regimes to ensure this interaction results in the intended outcomes under the GloBE Rules and may, in the future, consider solutions to address issues if they arise.

GloBE taxes

118.31 The definition of Covered Taxes excludes taxes arising under a Qualified IIR and a Qualified UTPR. These exceptions are necessary in the QDMTT context only where it is possible that the jurisdiction itself has an IIR or UTPR that could impose a tax liability on the same MNE Group. The rule aims at establishing a precise ordering rule according to which the QDMTT is applied primarily in respect of the IIR and UTPR under the GloBE Rules. For these purposes, the Top-up tax computation under IIR and UTPR takes into account the QDMTT. On the other hand, the IIR and UTPR must be excluded from the computation of the QDMTT Top-up Tax. For example, if the jurisdiction has in place a UTPR and the Constituent Entities in the jurisdiction are denied deductions so that the jurisdiction can collect its share of the allocable UTPR Top-up Tax, the tax liability arising under the UTPR cannot be treated as a covered tax under the QDMTT. If a jurisdiction does not have either an IIR or a UTPR, it would not need to exclude taxes paid under the GloBE Rules from the definition of QDMTT covered taxes. However, ongoing monitoring of a jurisdiction’s QDMTT would need to consider whether the jurisdiction had subsequently adopted the GloBE Rules and, if so, whether it had also amended its definition of QDMTT covered taxes.

Coordinating a QDMTT Article 4.1.5 with the GloBE Article 4.1.5

118.32 A QDMTT must have a provision equivalent to Article 4.1.5 to be functionally equivalent. The QDMTT-equivalent of Article 4.1.5 must be designed so that it takes into account any tax computed thereunder at the same time and in the same manner as the corresponding Additional Top-up Tax is taken into account under the GloBE Rules, including administrative guidance related to Excess Negative Tax Carry-forward.

Chapter 5. Computing the Top-up Tax

Jurisdictional blending

118.33 In general, Top-up Tax is computed for the jurisdiction as a whole, but excluding the income and taxes of Investment Entities, JVs, and MOCEs. The ETR and Top-up Taxes of these various categories of Entities must be computed separately under a QDMTT to produce functionally equivalent outcomes as discussed elsewhere in this Commentary. For QDMTT purposes, however, a jurisdiction could have stricter limitations on blending of income and taxes across the ordinary Constituent Entities in the jurisdiction provided that the limitations on blending produce outcomes that are functionally equivalent to the GloBE Rules.

118.33.1 Where domestic rules of a jurisdiction do not provide for taxation of MNE Groups at the national level and instead Covered Taxes and a QDMTT are imposed under the law of a sub-national governmental authority, such as a regional or provincial government, the sub-national governmental authority in the jurisdiction may apply the QDMTT, including the ETR and Top-up Tax computational rules, exclusively to Constituent Entities located in the sub-national jurisdiction (e.g. region or province). This will mean that the tax liability under the QDMTT will be determined based on sub-national jurisdictional blending. Similarly, a jurisdiction, or sub-national jurisdiction, may require the QDMTT to be applied on the basis of a taxable unit as determined under its domestic law (e.g. a single Constituent Entity). This will mean that the tax liability under the QDMTT will be determined based on a taxable unit blending (e.g. Constituent Entity-by-Constituent Entity blending if the taxable unit is a single Constituent Entity). Determining the ETR on a Constituent Entity-by-Constituent Entity basis will not prevent the QDMTT from being considered functionally equivalent to the GloBE Rules.

Top-up Tax formula

118.34 Article 5.2.3 of the GloBE Rules sets out the formula for computing the Top-up Tax under the GloBE Rules. The formula subtracts tax paid under a QDMTT from the current GloBE Top-up Tax. This formula must be modified for purposes of the QDMTT to eliminate that subtraction, else the computation will be circular. The current QDMTT Top-up Tax should be determined by multiplying the domestic QDMTT income by the jurisdictional top-up tax percentage and then adding any additional QDMTT top-up tax arising for the jurisdiction.

118.35 A QDMTT must also require that top-up tax computed under a provision equivalent to Article 5.2.3 in excess of the Minimum Rate is taken into account by the relevant Constituent Entity or Entities at the same time and in the same manner as such Top-up Tax is taken into account under the GloBE Rules. This means that the excess tax cannot be carried forward or treated as a reduction in prior Fiscal Years.

Substance-based income exclusion

118.36 In defining a QDMTT, Article 10.1 specifies that it is a tax that operates to increase the domestic tax liability with respect to domestic Excess Profits. Under the GloBE Rules, Excess Profits is generally the amount of profits over and above the Substance-based Income Exclusion in Article 5.4 (SBIE). The SBIE may be zero depending upon the circumstances and the MNE Group has the option of not applying the SBIE in a jurisdiction. A minimum tax that does not have a substance carve-out or that has a substance carve-out less generous than the SBIE will be functionally equivalent to the GloBE Rules.

118.37 A QDMTT is not required to have a substance carve-out. However, if it has a substance carve-out, such carve-out must not be broader than the substance factors as set out in the Substance-based Income Exclusion, i.e. tangible assets and payroll. The scope and measure of tangible assets and payroll must not be broader than the GloBE Rules to ensure functionally equivalent outcomes. However, the QDMTT carve-out could provide for an applicable percentage lower than the GloBE Rules. For example, a jurisdiction may want to provide a carve-out based only on 5% of tangible assets in the jurisdiction or based on 3% of tangible assets and payroll. Likewise, a jurisdiction may decide that it does not want to adopt the transition percentages in Article 9.2. However, the applicable percentage for the carve-out cannot exceed the percentages provided in the GloBE Rules (including the transition percentages) and still be considered functionally equivalent.

Tax rate

118.38 To be functionally equivalent, the tax rate applicable under a QDMTT must equal or exceed the Minimum Rate. Otherwise, the tax collected would consistently fall short of the GloBE Top-up Tax.

De minimis exclusion

118.39 A QDMTT is not required to have a De minimis exclusion pursuant to 5.5 in order to be considered functionally equivalent to the GloBE rules. However, if the QDMTT provides for a de minimis exclusion, it shall be based on the Average Revenue and Average Income or Loss, and the relevant thresholds can be equal or lower than the ones provided for under Article 5.5.1. The election shall be an Annual Election.

Chapter 6. Corporate restructurings and holding structures

118.40 Chapter 6 provides rules related to corporate reorganisations. These rules are intended to harmonize the GloBE Rules with common tax reorganisation rules. To be functionally equivalent, a QDMTT needs to include rules akin to those in Chapter 6 to the extent necessary to conform to the tax reorganization rules in the jurisdiction. For example, if the jurisdiction does not have taxdeferred reorganization rules in its ordinary CIT, the jurisdiction does not need the rules applicable to GloBE Reorganisations. Similarly, if the jurisdiction does not have a rule that would allow for an election under Article 6.3.4, the jurisdiction need not adopt rules that correspond to Articles 6.3.4. On the other hand, the jurisdiction will need a rule similar to Article 6.2.1 that requires GloBE income of the target be determined using historical carrying value of assets and liabilities. Further, the jurisdiction will need a rule similar to Article 6.3.1 that requires gain or loss to be recognized upon transfer of assets among Constituent Entities in the jurisdiction. Finally, the jurisdiction will need a rule similar to Articles 6.5.1(a) through (d) to ensure that same ETR and Top-up Tax computational rules apply to Constituent Entities of Multi-Parented MNE Groups located in the jurisdiction as they apply under the GloBE Rules.

Chapter 7. Tax Neutrality and Distribution Regimes

UPE that is a Flow-Through Entity and UPE subject to Deductible Dividend Regime

118.40.1 To produce outcomes that are consistent with the GloBE Rules, a QDMTT shall include provisions similar to Articles 7.1 and 7.2 of the GloBE Rules. Consequently, income attributable to the UPE cannot be subject to a QDMTT to the extent Articles 7.1 or 7.2 applies. In the case of Article 7.1, jurisdictions with Flow-through Entities need this provision otherwise it can alter the GloBE calculations. Similarly, jurisdictions that do not have Flow-through Entities should have this provision because Article 7.1.4 applies to a Permanent Establishment that could be located in those jurisdictions. In the case of Article 7.2, however, if a jurisdiction does not have a Deductible Dividend Regime, it is not required to include the corresponding provision in its QDMTT.

Eligible Distribution Tax System

118.40.2 A Filing Constituent Entity may make an annual election to apply Article 7.3 to Constituent Entities that are subject to an Eligible Distribution Tax System. In general, Article 7.3 computes the ETR for the jurisdiction each year based on deemed taxes paid and then recomputes the ETR at the end of a four-year period based on the actual taxes paid. A jurisdiction that has an Eligible Distribution Tax System shall include a provision that mirrors Article 7.3 in its QDMTT legislation. A jurisdiction that does not have an Eligible Distribution Tax System (i.e. a distribution tax system in force on or before 1 July 2021) is not required to have Article 7.3 in its QDMTT legislation because it will not have any effect.

ETR computation for Investment Entities

118.40.3 Article 7.4 of the GloBE Rules ensures that Top-up Tax only arises with respect to the MNE Group’s Interest in the Investment Entity or Insurance Investment Entity. It does so by computing the ETR and Top-up Tax of such Entities based only on income and taxes that are attributable to the MNE Group. As their Top-up Tax was already reduced by the amount attributable to non-Group Entities, a Parent Entity’s Inclusion Ratio in Investment Entities and Insurance Investment Entities is then deemed to be 100%, irrespective of the actual interest of the Parent Entity in their income.

118.40.4 Investment Entities and Insurance Investment Entities are often tax neutral and their income is subject to a single level of taxation in the hands of their shareholders. A QDMTT may exclude Investment Entities or Insurance Investment Entities from its scope (i.e. it could be limited to other Constituent Entities located in the jurisdiction). In this case, the income of such Investment Entities and Insurance Investment Entities would remain subject to Top-up Tax under the IIR or UTPR if their ETR is below the Minimum Rate.

118.40.5 A QDMTT that applies to Investment Entities and Insurance Investment Entities must compute the ETR and Top-up Tax pursuant to Article 7.4 in the same manner as the GloBE rules, except taxes that would be allocated to the Entity pursuant to Article 4.3.2(c) and (d) are not taken into account in the ETR computation. Liability for the QDMTT tax charge can be allocated to any Constituent Entity pursuant to paragraph 118.12. The liability for any QDMTT Top-up Tax determined under Article 7.4 should generally be allocated to another Constituent Entity (if any) that is located in the jurisdiction to preserve the tax neutrality of Investment Entities or Insurance Investment Entities.

Investment Entity Tax Transparency Election

118.40.6 Article 7.5 of the GloBE Rules provides a Five-Year Election to treat an Investment Entity or Insurance Investment Entity as a Tax Transparent Entity. The election is available to Constituent Entity-owners that are subject to a mark-to-market or a similar tax regime on their investment in such Entities at a rate that equals or exceeds the Minimum Rate. It is intended to match the timing and location of the income under the GloBE Rules and the local rules of the jurisdiction where the Constituent Entity-owners are located.

118.40.7 As provided in paragraph 118.53, a QDMTT must include all elections permitted under the GloBE Rules and require the MNE Group to make the same elections for both QDMTT and GloBE purposes. To provide outcomes that are consistent with the GloBE Rules, the QDMTT must treat an Investment Entity or Insurance Investment Entity as a Tax Transparent Entity to the extent that an election under Article 7.5 was made with respect to a Constituent Entity-owner’s Ownership Interest in the Entity. The QDMTT must treat the Constituent Entity-owner’s share of the income and taxes of any Investment Entity or Insurance Investment Entity that is subject to an election under Article 7.5 as the income and taxes of the Constituent Entity-owner. This means that if all the Ownership Interests of an Investment Entity or Insurance Investment Entity are subject to an election under Article 7.5, then all the GloBE Income or Loss will be allocated to the Constituent Entity-owners and the Entity will not have any GloBE Income or Loss subject to the QDMTT. On the other hand, to the extent that none of the Ownership Interests in the Investment Entity or Insurance Investment Entity is subject to an election under Article 7.5, the whole income of the Investment Entity or Insurance Investment Entity is subject to Article 7.4 or, if an election was made, Article 7.6.

Taxable Distribution Method Election

118.40.8 Article 7.6 of the GloBE Rules provides a Five-Year Election to apply the Taxable Distribution Method. The election reduces the exposure to Top-up Tax to the extent that the Investment Entity makes distributions of its income within a four-year period. It is only available where the Constituent Entity-owners are not Investment Entities or Insurance Investment Entities, and it is reasonably expected that such owners are subject to tax on the distributions from the Investment Entity or Insurance Investment Entity at a rate that equals or exceeds the Minimum Rate.

118.40.9 To produce outcomes that are consistent with the GloBE Rules, a QDMTT shall include a provision similar to Article 7.6. Under this provision, the QDMTT will take into account the distributions of the Investment Entity or Insurance Investment Entity to compute the GloBE Income or Loss of Constituent Entity-owners located in the jurisdiction and impose a Top-up Tax on the Investment Entity or Insurance Investment Entity in respect of any Undistributed Net Income.

Chapter 8. Administration

Filing obligations

118.41 The filing obligations under the GloBE Rules are set out in Article 8 and require the filing of a GloBE Information Return no later than 15 months after the last day of the Reporting Fiscal Year for the MNE Group. The GloBE Information Return is expected to be a standard template that will include information concerning the MNE Group necessary to report the GloBE computations and tax liability, if any.

118.42 As previously discussed, a QDMTT must deliver outcomes similar to those achieved under the GloBE Rules, but it is not required to follow the GloBE Rules verbatim to achieve this result. Nevertheless, to ensure coordination and preserve transparency, the design of the QDMTT needs to be functionally equivalent to the GloBE Rules such that the QDMTT computations can be made with the data points that are required to compute the GloBE tax liability. Using equivalent data points for purposes of the QDMTT and the GloBE Rules will facilitate compliance for MNE Groups, as well as coordination and mutual trust between jurisdictions. The information return collected by the QDMTT jurisdiction may follow a different format from the GloBE Information Return. However, as the QDMTT would use equivalent datapoints to those provided in the GloBE Information Return, the QDMTT jurisdiction could choose to use the GIR or rely on the information included on the GIR. The Inclusive Framework will consider providing further guidance on the information collection and reporting requirements under the QDMTT in the context of the development of the GloBE Information Return.

118.43 Article 5.2.3 of the GloBE Rules provides for a reduction in Top-up Tax liability for tax imposed under a QDMTT regime. A jurisdiction implementing a QDMTT will need to calibrate the filing deadline for the QDMTT to facilitate the correct reporting of Top-up Tax liability on the GloBE Information Return.

Interaction with agreed safe harbours

118.44 The Inclusive Framework has agreed on the design of transitional GloBE safe harbours and a regulatory framework for the development of a potential permanent GloBE safe harbours. These safe harbours allow MNE Groups to assume that the Top-up Tax for a jurisdiction is zero under certain conditions in order to reduce the burden of complying with the detailed computational requirements of the GloBE Rules. The Transitional CbCR Safe Harbour applies where it is unlikely that there would be Top-up Tax due in a jurisdiction during the initial transition period. The Permanent Simplified Calculations Safe Harbour would apply where undertaking Simplified Calculations (to be developed via future Agreed Admirative Guidance) would provide for the same final outcomes as those provided under a full application of the GloBE Rules or would not otherwise undermine the integrity of the GloBE Rules. In both cases, the GloBE Information Return will only require the information necessary to demonstrate the qualification for the safe harbour. The information necessary for the more detailed GloBE computations will not be reported because it is not necessary to compute the MNE Group’s Top-up tax liability for the jurisdiction when a safe harbour applies.

118.45 In general, the QDMTT is designed to impose top-up tax where there would otherwise be a Top-up Tax liability under the GloBE Rules. Consistent with that design principle, a QDMTT should also contain safe harbours that align with the safe harbours agreed under the GloBE Rules, including the transitional safe harbours. Otherwise, the MNE Group will be forced to undertake the detailed income and covered taxes computations solely for purposes of the QDMTT where the Inclusive Framework has determined there is little risk of top-up tax liability.

QDMTT safe harbour

118.46 The Inclusive Framework will undertake further work on the development of a QDMTT Safe Harbour. This Safe Harbour would provide compliance simplifications for MNE Groups operating in a jurisdiction that has adopted a QDMTT that meets certain conditions to be developed in future work, for example by exempting the MNE Group from the requirements to perform additional GloBE calculations in respect of Constituent Entities located in a jurisdiction that qualifies for the Safe Harbour.

Chapter 9. Transition rules

118.47 The GloBE transition rules are set out in Article 9. Generally, these rules take existing tax attributes into account, including all pre-existing tax losses, to simplify the application of the GloBE Rules and reduce compliance burdens when an MNE Group first comes into scope of the rules. Article 9 also has a limitation of the application of the UTPR when an MNE Group is in its initial phase of expanding abroad. The transition rules also provide a phased introduction of the GloBE Rules through a gradual reduction of the Substance-Based Income Exclusion over a ten-year period beginning in January 2023.

Tax attributes

118.48 Article 9.1.1 sets out a general rule that an MNE Group must carry its existing deferred tax attributes into the GloBE Rules with certain adjustments, such as a recast at the Minimum Rate. These tax attributes will generally reverse in future years in which the MNE Group is subject to the GloBE Rules and may result in increases or decreases to Adjusted Covered Taxes. Because Adjusted Covered Taxes are key component of the GloBE ETR computation, it is essential that the deferred tax starting point for a QDMTT mirror that of the GloBE Rules. Otherwise, the ETR computed under the QDMTT could vary significantly from that computed under the GloBE Rules due to movements in a different deferred tax base. The deferred tax movements cannot easily be modified and tracked separately for QDMTT purposes while still providing for outcomes consistent with the GloBE Rules. Therefore, a jurisdiction adopting a QDMTT must adopt the Article 9.1.1 transition rule to take into account the same starting point for deferred tax items as the GloBE Rules.

118.49 Similarly, Articles 9.1.2 and 9.1.3 provide for GloBE-specific modifications to the Article 9.1.1 deferred tax starting point and must be adopted under a QDMTT regime to ensure the deferred tax starting point is the same for both the QDMTT and GloBE computations. Article 9.1.2 is an anti-abuse rule to prevent a taxpayer from triggering tax losses that would be excluded from the GloBE base in a pre-GloBE year and then carrying the deferred tax benefit of such loss carryforward into the GloBE regime. Similarly, Article 9.1.3 disallows a basis step-up when a taxpayer transfers assets during the transition period to ensure that the gain associated with such transfers does not escape inclusion in the GloBE base. As with Article 9.1.1, these articles must be adopted in a QDMTT to ensure consistent outcomes with the GloBE Rules and that the same starting point is taken into account for covered taxes and the carrying value of assets for GloBE purposes.

118.49.1 Under Article 10.1 of the GloBE Rules, a Transition Year is the first Fiscal Year that the MNE Group comes within the scope of the IIR and/or UTPR with respect to the jurisdiction. The application of the provisions in Articles 9.1.1 and 9.1.2 requires some coordination in cases where the first Fiscal Year that a QDMTT applies to domestic Constituent Entities located in the jurisdiction is before or after the first Fiscal Year in which the GloBE Rules apply to those Constituent Entities. For purposes of Article 9.1.3, coordination is also needed for cases where the Fiscal Year that the disposing Constituent Entity comes within the scope of the GloBE Rules and/or the QDMTT is different from the Fiscal Year that the acquiring Constituent Entity comes within the scope of the GloBE Rules and/or the QDMTT.

118.49.2 A QDMTT must have a transition rule similar to Articles 9.1.1 and 9.1.2 that applies where the QDMTT becomes applicable to Constituent Entities in the jurisdiction in a Fiscal Year that begins on or before the Fiscal Year that the GloBE Rules first become applicable to those Constituent Entities. In order to ensure coordinated outcomes where the GloBE Rules come into effect for such Constituent Entities after the QDMTT, the QDMTT also must have a supplemental rule that treats the Fiscal Year that the GloBE Rules come into effect for such Constituent Entities as a new Transition Year and re-sets the following attributes of those Constituent Entities:

(a) Article 4.1.5 and Article 5.2.1. Any Excess Negative Tax Expense Carry-forward under Article 4.1.5 or Article 5.2.1 shall be eliminated at the beginning of the new Transition Year.

(b) Article 4.4.4. The DTL recapture rule in Article 4.4.4 shall not apply to any deferred tax liability that was taken into account in computing the ETR under the QDMTT and that was not recaptured prior to the new Transition Year. Article 4.4.4 shall apply to deferred tax liabilities that are taken into account in and after the new Transition Year.

(c) Article 4.5. Any GloBE Loss Deferred Tax Asset that arose in a year preceding the new Transition Year must be eliminated. The Filing Constituent Entity may make a new GloBE Loss election in the new Transition Year.

(d) Article 9.1.1. The deferred tax items previously determined shall be eliminated and Article 9.1.1 shall be applied at the beginning of the new Transition Year.

(e) Article 9.1.2. Article 9.1.2 shall apply to transactions occurring after 30 November 2021 and before the beginning of the new Transition Year. However, if QDMTT was payable due to the application of Article 4.1.5 in respect of a deferred tax asset attributable to a tax loss, such deferred tax asset shall not be treated as arising from items excluded from the computation of GloBE Income or Loss under Chapter 3.

Transitional relief for Substance-based Income Exclusion

118.50 Article 9.2 of the GloBE Rules provides for a more generous Substance-based Income Exclusion during a ten-year transition period. The Substance-based Income Exclusion only serves to reduce Excess Profit in a jurisdiction for purposes of computing the Top-up Tax due with respect to a jurisdiction. Unlike Article 9.1, the failure to adopt Article 9.2 would not lead to outcomes inconsistent with the GloBE Rules, because not adopting a more generous Substance-based Income Exclusion will only lead to the collection of additional Top-up Tax with respect to the jurisdiction that has adopted the QDMTT. Accordingly, a jurisdiction adopting a QDMTT need not adopt Article 9.2 to provide for outcomes consistent with the GloBE Rules.

Exclusion from the UTPR of MNE Groups in the initial phase of their international activity

118.51 Article 9.3 reduces the UTPR Top-up Tax Amount to zero where an MNE Group is in its initial phase of international activity. While this provision effectively turns off the UTPR, the IIR can still apply to MNE Groups in the initial phase of their international activity if a Parent Entity is located in a jurisdiction that introduced the IIR. Jurisdictions have three options with respect to Article 9.3 in relation to their QDMTT legislation. Option one allows the jurisdiction not to adopt Article 9.3 in their QDMTT legislation. Option two allows the jurisdiction to introduce Article 9.3 in their QDMTT legislation but limited to the cases where none of the Ownership Interests in the Constituent Entities located in the QDMTT jurisdiction are held by a Parent Entity subject to a QIIR. Option three allows the jurisdiction to adopt Article 9.3 in their QDMTT legislation without the limitations in option two. The status of the QDMTT will not be affected where the jurisdiction adopts any of these three options.

Transitional relief for filing obligations

118.52 Article 9.4 provides an extended filing deadline for GloBE Information Returns in a Transition Year. Because this Article relates solely to a one-time extended filing deadline and has no bearing on GloBE computations, it need not be adopted in the context of a QDMTT. However, a jurisdiction could choose to conform its QDMTT filing deadline with the Article 9.4 filing deadline if it wished to do so, as it would not provide for outcomes inconsistent with the GloBE Rules.

Chapter 10. Definitions

118.52.1 To avoid coordination issues and provide outcomes that are consistent with the GloBE Rules, except as modified or provided otherwise in the Commentary to Article 10.1 on the definition of a QDMTT, a jurisdiction shall make sure that its QDMTT legislation incorporates the outcomes provided by all the definitions and the rules determining the location of an Entity or Permanent Establishment in Chapter 10 of the GloBE Rules.

Other considerations

Elections

118.53 Where the GloBE Rules permit an election, a QDMTT generally must also provide for the election and require the MNE Group to make the same election under the QDMTT as is made under the GloBE Rules. If the MNE Group is not permitted or required to make the same elections for purposes of both the GloBE Rules and the QDMTT, the outcomes of the relevant computations will not be consistent and the QDMTT may not be functionally equivalent. However, a QDMTT that does not provide for certain elections, for example GloBE Loss Election, may be functionally equivalent.

Currency

118.54 Where the QDMTT is computed based on the financial accounting standards determined in accordance with Article 3.1.2 or Article 3.1.3, the QDMTT shall require Constituent Entities to make the QDMTT computations using the presentation currency of the Consolidated Financial Statements in accordance with the Commentary to Article 3.1.2 and 3.1.3. Where the QDMTT legislation requires the computations to be made using the Local Financial Accounting Standard and all Constituent Entities in a jurisdiction use the local currency as their functional currency, the QDMTT shall require these computations in the local currency. However, where the QDMTT legislation requires the computations to be made using the local accounting standard and one or more of the Constituent Entities in a jurisdiction use a currency other than the local currency as their functional currency, the QDMTT shall provide a Five-Year election under which the Constituent Entities may undertake the QDMTT computations using the presentation currency of the Consolidated Financial Statements or the local currency. The Constituent Entities that use a different functional currency must apply the currency translation rules under the financial accounting standards used for purposes of the QDMTT computations. These rules apply without regard to the jurisdiction’s rules for converting the QDMTT liability to local currency for purposes of payment.

As part of the Agreed Administrative Guidance from 2 February 2023 paragraph 118 were revised of the commentaries to the definition of a “Qualified Domestic Minimum Top-up Tax”.

As part of the Agreed Administrative Guidance of 17 July 2023 changes were again made to paragraph 118.1-118.52.

Qualified IIR means a set of rules equivalent to Article 2.1 to Article 2.3 of the GloBE Rules (including any provisions of the GloBE Rules associated with those articles) that are included in the domestic law of a jurisdiction and that are implemented and administered in a way that is consistent with the outcomes provided for under the GloBE Rules and the Commentary provided that such jurisdiction does not provide any benefits that are related to such rules.

Qualified IIR

119. The definition of Qualified IIR is relevant for purposes of applying the IIR in Articles 2.1 to 2.3. In applying the GloBE Rules in the implementing jurisdiction, both taxpayers and tax administrations often need to evaluate whether other Constituent Entities in that same group are subject to a Qualified IIR in another jurisdiction in order to correctly apply GloBE Rules. For example, a taxpayer that is an Intermediate Parent Entity will not be required to apply the IIR in respect of its Ownership Interest in any LTCE if the UPE of the MNE Group is required to apply a Qualified IIR in the same Fiscal Year.

120. The definition of Qualified IIR refers to “a set of rules equivalent to Article 2.1 to 2.3 of the GloBE Rules (including any provisions of the GloBE Rules associated with those articles) that are included in the domestic law of a jurisdiction and that are implemented and administered in a way that is consistent with the outcomes provided for under the GloBE Rules and their Commentary”. The intention of this phrase is to ensure that the IIR adopted in the domestic law of a jurisdiction is both implemented and applied in a way that produces the same outcomes as the ones described in the GloBE Rules and their Commentary. This includes administrative provisions of the GloBE Rules and timely collection of tax arising thereunder.

121. The definition does not require a comparison between the domestic laws of one jurisdiction and another, rather it compares the rules legislated in a jurisdiction with the relevant provisions of the GloBE Rules and their Commentary as developed by the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting. This ensures that the IIRs of each jurisdiction is evaluated in accordance with the same set of rules that have been developed by the OECD/G20 Inclusive Framework members and not on a bilateral basis with each and every domestic law of the other jurisdictions.

122. In some cases, constitutional or other legal constraints may restrict a jurisdiction from referring directly to standards developed outside of that jurisdiction. In other words, the jurisdiction is not able to enact legislation that evaluate the IIR of another jurisdiction based on the GloBE Rules. Under these circumstances, jurisdictions may link the test for a Qualified IIR to the outcomes under their own legislation, based on the premise that their domestic rules are equivalent to the GloBE Rules and, accordingly, that any set of rules implemented under foreign law that produces the same outcomes as the GloBE Rules will also meet the domestic law test for a Qualified IIR. The reference to Article 2.1, which includes Article 2.1.6, clarifies that an IIR that does not apply to domestic LTCEs should still be considered a Qualified IIR. Accordingly, a jurisdiction that introduces an IIR that also applies to domestic subsidiaries should treat the IIR under the laws of a foreign jurisdiction as a Qualified IIR even if that IIR only applies to foreign operations.

123. The next part of the definition establishes a condition for an IIR to be “qualified”. It says that the jurisdiction shall not provide any benefits that are related to the IIR or the UTPR that it has implemented. This rule is intended to provide a level playing field in all the jurisdictions that have adopted these rules. The word “benefits” is comprehensive enough to cover any kind of advantage provided by a jurisdiction, including tax incentives, grants, and subsidies and the phrase “related to such rules” is intentionally drafted with broad language to take into account different mechanisms through which the benefit is provided.

124. For instance, assume a jurisdiction has adopted all of the provisions of the GloBE Rules in its legislation, including the ones in Article 2.1. However, it provides a tax credit equivalent to a portion of the tax paid under the IIR to be used against other taxes. In this case, the jurisdiction has not adopted a Qualified IIR.

125. Whether a benefit relates to the IIR must be determined based on the facts and circumstances of each case. It has to take into account the underlying principle behind this condition, which is to provide a level playing field among all jurisdictions and to avoid inversions incentivized by differences in the implementation and application of the GloBE Rules.

126. A tax benefit or grant provided to all taxpayers is not related to the GloBE Rules. Facts that are relevant but not decisive include whether the tax benefit or grant benefits only taxpayers subject to the GloBE Rules, whether the benefit is marketed as part of the GloBE Rules and if the regime was introduced after the OECD/G20 Inclusive Framework started discussing the GloBE Rules. In this context, the term “jurisdiction” is not restricted to the national or central government of the jurisdiction. It includes any political subdivision, local authority, or any other public entity or arrangement. For example, if a public development bank provides a particular benefit that is related to the application of the IIR, then such rule is not a Qualified IIR.

127. The GloBE Implementation Framework will develop processes and provide guidance to facilitate the co-ordinated implementation of the GloBE Rules. This will include implementing a process to assist tax administrations in determining whether a country has introduced a Qualified IIR. In order to facilitate transparency, consistency and co-ordination, the outcome of these determinations will be released and made publicly available.

Qualified Imputation Tax means a Covered Tax accrued or paid by a Constituent Entity that is refundable or creditable to the beneficial owner of a dividend distributed by such Constituent Entity (or, in the case of a Covered Tax accrued or paid by a Permanent Establishment, a dividend distributed by the Main Entity) to the extent that the refund is payable, or the credit is provided:

(a) by a jurisdiction other than the jurisdiction which imposed the Covered Taxes under a foreign tax credit regime;

(b) to a beneficial owner of the dividend that is subject to tax at a nominal rate that equals or exceeds the Minimum Rate on the dividend on a current basis under the domestic law of the jurisdiction which imposed the Covered Taxes on the Constituent Entity;

(c) to an individual beneficial owner of the dividend who is tax resident in the jurisdiction which imposed the Covered Taxes on the Constituent Entity and who is subject to tax on the dividends as ordinary income; or

(d) to a Governmental Entity, an International Organisation, a resident Non-profit Organisation, a resident Pension Fund, a resident Investment Entity that is not a Group Entity, or a resident life insurance company to the extent that the dividends are received in connection with a pension fund business and subject to tax in a similar manner as a dividend received by Pension Fund.

For purposes of paragraph (d), a Non-Profit Organisation or Pension Fund is resident in a jurisdiction if it is created and managed in that jurisdiction, and an Investment Entity is resident in a jurisdiction if it is created and regulated in the jurisdiction. A life insurance company is resident in the jurisdiction in which it is located.

Qualified Imputation Tax

128. The GloBE Rules provide a specific definition of Qualified Imputation Tax that distinguishes it from a Disqualified Refundable Imputation Tax. Both of these taxes are imputation taxes, in the sense that they allow either the company or the shareholder to claim a full or partial credit or refund of the corporate income tax previously paid by the company when that income is subsequently distributed to the shareholder in the form of a dividend. Under a Disqualified Refundable Imputation Tax regime, however, the corporate tax previously paid may be refunded without subjecting the shareholders to tax on the dividend.

129. The definition of Qualified Imputation Tax and Disqualified Refundable Imputation Tax both require an examination of a jurisdiction’s arrangements for the crediting and refunding of amounts of corporate tax paid through imputation systems. Once the features of a particular jurisdiction’s arrangements are established to operate in the manner outlined in those definitions, or the extent to which it operates in such a manner, it is not necessary to test whether individual payments of tax, or individual credits or refunds are of the type mentioned in those definitions. Nonetheless, if the jurisdiction alters its domestic tax law for the crediting or refunding of corporate tax paid, or in respect of applicable tax rates, it will need to be redetermined whether those arrangements are, or are not, operating in the manner outlined in those definitions, or the extent to which it is or is not operating in that manner.

130. The definition of Qualified Imputation Tax has very specific requirements with regard to the taxation of the dividend recipients to ensure that the refund or credit is indeed a mechanism for ensuring a single level of tax. Under paragraphs (b) and (c) of the definition, the refund or credit must arise in connection with a dividend to a beneficial owner that: (b) is subject to a nominal rate of tax that equals or exceeds the Minimum Rate; or (c) is an individual that is resident in the jurisdiction of the distributing corporation and that is subject to tax on the dividend as ordinary income.

131. If the jurisdiction has a graduated rate structure, the nominal rate under paragraph (b) of the definition is the lowest rate applicable to the beneficial owner. The reference to taxation as ordinary income in paragraph (c) of the definition is intended to ensure that the dividend is not subject to low rates of tax only or specifically applicable to dividends or other passive income. Dividends distributed to a Governmental Entity, an International Organisation, a resident Non-profit Organisation, a resident Pension Fund or a resident Investment Entity that is not a Group Entity, do not need to be subject to tax in order for the regime to meet the criteria for a Qualified Imputation Tax regime. Dividends paid to life insurance companies that are treated similar to Pension Funds in respect of dividends it receives as part of a pension fund business are also exempt from the requirement to be taxed at the Minimum Rate.

132. In the event that a particular imputation system is not completely covered in the previous paragraph, (e.g. due to additional categories of shareholders not described in paragraphs (a) to (d) that may be eligible for a refund or credit), it may be necessary to then test to what extent a particular amount of Covered Tax is creditable or refundable in situations covered by paragraphs (a) to (d). In such cases, an amount of Covered Taxes can still be a Qualified Imputation Tax to the extent that the refund or credit of that tax is covered by paragraphs (a) to (d) of the definition. In applying paragraphs (a) to (d), an amount of Covered Tax can still be a Qualified Imputation Tax, notwithstanding a dividend has not yet been distributed, declared or paid, as long as there is a reasonable expectation that if distributed, the refund would be payable, or the credit would be creditable when distributed in the situations described in paragraphs (a) to (d).

133. The GloBE Implementation Framework will develop processes and provide guidance to facilitate the co-ordinated implementation of the GloBE Rules. This will include implementing a process to assist tax administrations in determining whether a tax regime is a Qualified Imputation Tax. In order to facilitate transparency, consistency and co-ordination, the outcome of these determinations will be released and made publicly available.

Qualified Refundable Tax Credit means a refundable tax credit designed in a way such that it must be paid as cash or available as cash equivalents within four years from when a Constituent Entity satisfies the conditions for receiving the credit under the laws of the jurisdiction granting the credit. A tax credit that is refundable in part is a Qualified Refundable Tax Credit to the extent it must be paid as cash or available as cash equivalents within four years from when a Constituent Entity satisfies the conditions for receiving the credit under the laws of the jurisdiction granting the credit. A Qualified Refundable Tax Credit does not include any amount of tax creditable or refundable pursuant to a Qualified Imputation Tax or a Disqualified Refundable Imputation Tax.

Qualified Refundable Tax Credit

134. The GloBE Rules include specific rules in Chapters 3 and 4 for the treatment of Qualified Refundable Tax Credits and Non-Qualified Refundable Tax Credits. A Qualified Refundable Tax Credit is treated as income for purposes of the GloBE Rules, which means the credit is taken into account in the denominator of the ETR computation and is not treated as reducing a Constituent Entity’s taxes in the year the refund or credit is claimed. All other refundable tax credits (i.e. Non-Qualified Refundable Tax Credits) are excluded from income but treated as a reduction to Covered Taxes in the period the refund or credit is claimed, which means they reduce the numerator of the ETR computation. The distinction between “Qualified” and “Non-Qualified” Refundable credits, and their different treatment under specific rules in Chapters 3 and 4, ensure that refundable tax credits are properly accounted for in the computation of the GloBE Income or Loss and the determination of Adjusted Covered Taxes in a way that provides for transparent and predictable outcomes under the GloBE Rules.

135. In order to be treated as a Qualified Refundable Tax Credit under the GloBE Rules, the tax credit regime must be designed in a way so that a credit becomes refundable within 4 years from when the conditions under the laws of the jurisdiction granting the credit are met. Refundable means that the amount of the credit that has not been applied already to reduce Covered Taxes is either payable as cash or cash equivalent. For this purpose, cash equivalent includes checks, short-term government debt instruments, and anything else treated as a cash equivalent under the financial accounting standard used in the Consolidated Financial Statements as well as the ability to use the credit to discharge liabilities other than a Covered Tax liability. If the credit is only available to reduce Covered Taxes, i.e. it cannot be refunded in cash or credited against another tax, it is not refundable for this purpose. If the tax credit regime provides for an election by the taxpayer to receive the credit in a manner that is refundable, the tax credit regime is considered refundable to the extent of the refundable portion, regardless of whether any particular taxpayer elects refundability.

136. The conditions for a Qualified Refundable Tax Credit draw on the treatment in financial accounting standards (both for government grants and for income taxes), and are designed to identify tax credits that are, as a matter of substance and not merely form, likely to be refunded. However, in order to be treated as a Qualified Refundable Tax Credit under the GloBE Rules, the tax credit regime under the laws of a jurisdiction must be designed such that the refund mechanism has practical significance for those taxpayers that will be entitled to the credit. If the design of a tax credit regime is such that the credit will never exceed any taxpayer’s tax liability (or it is intended that the credit will never exceed any taxpayer’s tax liability), then, the refund mechanism will be of no practical significance to taxpayers and the GloBE Rules will not treat the credit as a Qualified Refundable Tax Credit. The assessment of whether a credit is refundable in the sense contemplated by the GloBE Rules must be made based on the conditions under which the credit is granted and on the information that was available at the time the credit was introduced into domestic law. This analysis is based on a qualitative assessment of the tax credit regime as a whole, and not on a taxpayer specific basis, however it should take into account circumstances under which the credit is made available. For example, a tax credit regime that was only available to a profitable taxpayer or group of taxpayers that were profitable (and excluded taxpayers that were not profitable) might include a refundable element that, in practice, can never result in the credit exceeding the taxpayer’s tax liability. In contrast a tax credit regime that is generally available to taxpayers will not cease to be a Qualified Refundable Tax Credit simply because all the taxpayers that take advantage of that credit happen to be profitable.

137. The determination of whether a credit is refundable within 4 years is made at the time the conditions for granting the credit are met based on the law of the jurisdiction that granted the credit. Thus, in a situation where the Constituent Entity has incurred no tax or other liability to a government in the jurisdiction that granted the credit, a credit must be payable in cash or cash equivalents within 4 years from when the relevant conditions for granting the credit are met in order to be a Qualified Refundable Tax Credit. Where the tax credit regime under the laws of a jurisdiction provides for a partial refund such that only a fixed percentage or portion of the credit is refundable, the refundable portion of the credit can be treated as a Qualified Refundable Tax Credit provided that portion will become refundable within 4 years from when the conditions for granting the credit under the laws of the jurisdiction granting the credit are met.

138. The provisions of Article 8.3 on Administrative Guidance will apply to ensure consistency of outcomes in respect of the application of this standard. If those jurisdictions that adopt the common approach identify risks associated with the treatment of tax credits and government grants that lead to unintended outcomes, the relevant jurisdictions could be asked to consider developing further conditions for a Qualified Refundable Tax Credit or, if necessary, explore alternative rules for the treatment of tax credits and government grants. This analysis would be based on empirical and historical data with respect to the tax credit regime as a whole, and not on a taxpayer specific basis.

Qualified UTPR means a set of rules equivalent to Article 2.4 to Article 2.6 of the GloBE Rules (including any provisions of the GloBE Rules associated with those articles) that are included in the domestic law of a jurisdiction and that are implemented and administered in a way that is consistent with the outcomes provided for under the GloBE Rules and the Commentary provided that such jurisdiction does not provide any benefits that are related to such rules.

Qualified UTPR

139. The GloBE Rules are intended to be implemented as part of a common approach. The common approach does not require jurisdictions to adopt the GloBE Rules, but, if a jurisdiction chooses to do so, it agrees to implement and administer them in a way that is consistent with these GloBE Rules. The GloBE Rules provide an interlocking set of rules that avoid multiple applications of these rules in respect of the same item of income through (i) an agreed rule order and (ii) an allocation of top-up tax where relevant. In particular, the UTPR allocates Top-up Tax among UTPR Jurisdictions, which are defined as jurisdictions that have a Qualified UTPR in force. For purposes of applying the UTPR under local law in each jurisdiction, it is therefore necessary to evaluate which Constituent Entities of the MNE Group are subject to a Qualified UTPR.

140. Under the definition set out in Article 10.1 of the GloBE Rules, a Qualified UTPR means: “…a set of rules equivalent to Article 2.4 to Article 2.6 of the GloBE Rules (including any provisions of the GloBE Rules associated with those articles) that are included in the domestic law of a jurisdiction and that are implemented and administered in a way that is consistent with the outcomes provided for under the GloBE Rules and the Commentary, provided that such jurisdiction does not provide any benefits that are related to such rules.”

141. The definition prohibits a jurisdiction from providing benefits that are related to the IIR or the UTPR that it has implemented. See discussion on this in the Commentary to the definition of a Qualified IIR.

142. This definition does not compare the UTPR under local law with the equivalent provision implemented in another jurisdiction. Rather it compares the UTPR adopted in the domestic law of a jurisdiction with the GloBE Rules and their Commentary as developed by the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting. In some cases, constitutional or other legal constraints may restrict a jurisdiction from referring directly to standards developed outside of that jurisdiction. In other words, the jurisdiction is not able to enact legislation that evaluate the UTPR of another jurisdiction based on the GloBE Rules. Under these circumstances, jurisdictions may link the test for a Qualified UTPR to the outcomes under their own legislation.

143. The GloBE Implementation Framework will provide for guidance and processes agreed by the Inclusive Framework on BEPS to facilitate the co-ordinated implementation of the GloBE Rules. This will include guidance and processes to determine whether a set of rules is considered as a Qualified UTPR. The ability of a UTPR Jurisdiction to collect the UTPR Top-Up Tax Amount (taking into consideration, for example, any relevant domestic statute of limitations) that it would be allocated should be taken into account in order to determine whether a jurisdiction has a Qualified UTPR. In order to facilitate compliance by MNEs and administration by tax authorities, the outcome of these determination would be released and made publicly available.

Qualifying Competent Authority Agreement means a bilateral or multilateral agreement or arrangement between Competent Authorities that provides for the automatic exchange of annual GloBE Information Returns.

Real Estate Investment Vehicle means an Entity the taxation of which achieves a single level of taxation either in its hands or the hands of its interest holders (with at most one year of deferral), provided that that person holds predominantly immovable property and is itself widely held.

Real Estate Investment Vehicle

144. As with Investment Funds, a Real Estate Investment Vehicle that is the UPE of an MNE Group is an Excluded Entity in accordance with Article 1.5.1. While in many cases, these investment vehicles would qualify as Excluded Entities by virtue of being Investment Funds, in certain cases Real Estate Investment Vehicles may not be subject to the necessary regulation or managed by investment fund management professionals to satisfy the requirements terms of paragraph (f) or (g) of the Investment Fund definition. Accordingly Real Estate Investment Vehicles are also identified under the GloBE Rules as a separate category of Excluded Entity under Article 1.5.1.

145. A Real Estate Investment Vehicle is a widely-held Entity that holds predominantly immovable property. The definition in the GloBE Rules draws on the “special tax regime” provision included in paragraph 86 of the Commentary on Article 1 of the OECD Model Tax Convention (OECD, 2017[1]). A widely-held Entity is one that has many owners that are not connected persons. For this purpose, an owner should be treated as connected to another owner if it meets the test set out in Article 5(8) of the OECD Model Tax Convention. A Real Estate Investment Vehicle that is owned directly by a small number of other widely-held Investment Entities or Pension Funds that have numerous beneficiaries is considered to be widely-held.

146. One of the conditions set out in the definition is that Real Estate Investment Vehicle achieves a single level of taxation (with at most one year of deferral). The intention of this language is to deal with tax neutral vehicles which are designed to ensure that a single level of taxation is achieved either in the hands of the vehicle or its equity interests holders. This could be the case of an exempt entity provided that it distributes its income within a time period. The distribution is then subject to tax in order to achieve a single level of taxation. Furthermore, this also includes where part of the income is subject to tax at the fund level and the remaining part at the investor level.

147. In some situations, however, the Interest holders could also be tax neutral vehicles such as a recognised Pension Fund. In these cases, on a strict reading, a single level of taxation would not be achieved within a year as the distributions made to these investors could be exempted. However, the definition would still be met because the design of the tax regime was to achieve a single level of taxation.

148. The definition also requires that the Entity holds predominantly immovable property. In some cases, such property would not be held directly but indirectly via holding a security the value of which is linked to immovable property. An Entity that holds predominantly immovable property, either directly or indirectly via such securities (or a combination of the two) will meet the condition the definition.

Recaptured Deferred Tax Liability is defined in Article 4.4.4.

Recapture Exception Accrual is defined in Article 4.4.5.

Reductions to Covered Taxes is defined in Article 4.1.3.

Reference Jurisdiction is defined in Article 9.3.3.

Reporting Fiscal Year means the Fiscal Year that is the subject of the GloBE Information Return.

Short-term Portfolio Shareholding means a Portfolio Shareholding that has been economically held by the Constituent Entity that receives or accrues the dividends or other distributions for less than one year at the date of the distribution.

Stapled Structure means an arrangement entered into by two or more Ultimate Parent Entities of separate Groups, under which:

(a) 50% or more of the Ownership Interests in the Ultimate Parent Entities of the separate Groups are by reason of form of ownership, restrictions on transfer, or other terms or conditions combined with each other, and cannot be transferred or traded independently. If the combined Ownership Interests are listed, they are quoted at a single price; and

(b) one of those Ultimate Parent Entities prepares Consolidated Financial Statements in which the assets, liabilities, income, expenses and cash flows of all the Entities of the Groups are presented together as those of a single economic unit and that are required by a regulatory regime to be externally audited.

Stateless Constituent Entity means a Constituent Entity described in Article 10.3.2(b) and Article 10.3.3(d).

Substance-based Income Exclusion is defined in Article 5.3.

Tangible Assets, for the purposes of the UTPR percentage and for Article 9.3, means the Tangible Assets of all the Constituent Entities resident for tax purposes in the relevant tax jurisdiction. Tangible Assets do not include cash or cash equivalents, intangibles, or financial assets. With regard to Permanent Establishments, Tangible Assets should be allocated to the tax jurisdiction in which the Permanent Establishment is located provided those Tangible Assets are included in the separate financial accounts of that Permanent Establishment as determined by Article 3.4.1 and adjusted in accordance with Article 3.4.2. The Tangible Assets allocated to the tax jurisdiction of a Permanent Establishment shall not be taken into account for the Tangible Assets of the tax jurisdiction of the Main Entity.

Tax means a compulsory unrequited payment to General Government.

Taxable Distribution Method is defined in Article 7.6.2.

Tax Treaty means an agreement for the avoidance of double taxation with respect to taxes on income and on capital.

Tax Treaty

149. The term Tax Treaty is broadly defined in the GloBE Rules. It means an agreement for the avoidance of double taxation with respect to taxes on income including any modifications to that treaty by any subsequent protocol or the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting. It also includes any other type of agreements with clauses to avoid double taxation with respect to taxes on income such as an Air Traffic Agreement if such clauses are relevant for purposes of the GloBE Rules.

Tested Year is defined in Article 7.6.5.

Testing Period is defined in Article 7.6.5.

Top-up Tax means the top-up tax computed for the jurisdiction or Constituent Entity pursuant to Article 5.2.

Top-up Tax Percentage is defined in Article 5.2.1.

Total Deferred Tax Adjustment Amount is defined in Article 4.4.1.

Total UTPR Top-up Tax Amount means the total amount of Top-up Tax that is allocable under the UTPR as defined in Article 2.4.1.

Transition Year, for a jurisdiction, means the first Fiscal Year that the MNE Group comes within the scope of the GloBE Rules in respect of that jurisdiction.

Ultimate Parent Entity (UPE) is defined in Article 1.4. Undistributed Net GloBE Income is defined in Article 7.6.3.

UPE Jurisdiction means the jurisdiction where the Ultimate Parent Entity is located.

UTPR means the rules set out in Article 2.4 to Article 2.6.

UTPR Jurisdiction means a jurisdiction that has a Qualified UTPR in force.

UTPR Percentage means the percentage of Total UTPR Top-up Tax Amount that is allocated to a UTPR Jurisdiction in accordance with the formula provided in 2.6.1.

UTPR Top-up Tax Amount means the amount of Top-up Tax allocated to a UTPR Jurisdiction under the UTPR.

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 [...]