Article 2.1.1

11. Article 2.1.1 provides the main rule for application of the IIR. It applies when a UPE, that is a Constituent Entity, “owns (directly or indirectly) an Ownership Interest in a Low-Taxed Constituent Entity at any time during the Fiscal Year”. The amount of the Ownership Interests held by the UPE in the LTCE is not directly relevant in the determination of whether this Article applies because a pre-requisite of this rule is that the low-taxed Entity is a Constituent Entity (or treated as such in the case of JVs) and a member of the MNE Group.

12. Article 2.1.1 also contains the main charging provision of the IIR. It requires the UPE to pay a tax in an amount equal to its Allocable Share of the Top-up Tax of that LTCE for the Fiscal Year. The determination of a Parent Entity’s “Allocable Share” is discussed in the Commentary to Article 2.2.

13. The IIR applies if the UPE holds Ownership Interests of the LTCE “at any time during the Fiscal Year”. This means that the UPE is required to apply the IIR with respect to a Constituent Entity that was disposed or acquired during the Fiscal Year. The holding period of the interests during the Fiscal Year is not relevant for purposes of applying Article 2.1.1 because this is already reflected in the computation of the Top-up Tax under Chapter 5. The calculation of the Top-up Tax takes into account the amount of income reported in the Consolidated Financial Statements which takes into account the holding period in which the UPE owns an LTCE for the Fiscal Year. The special rules under Article 6.2.1 provide greater detail on how the GloBE Rules operate under these circumstances, including how the IIR and top-down approach apply.

Article 2.1.2

14. Article 2.1.2 provides the rules for application of the IIR by an Intermediate Parent Entity. An Intermediate Parent Entity is defined in Article 10.1 as a Constituent Entity (other than a UPE, POPE, PE or Investment Entity) that owns (directly or indirectly) an Ownership Interest in another Constituent Entity in the same MNE Group. Investment Entities (i.e., an Investment Fund or a Real Estate Investment Vehicle and certain subsidiaries of such entities as set out in the Article 10 definition) are excluded from the definition of Intermediate Parent Entity and Parent Entity in order to preserve the tax neutrality of the Investment Entity vis-à-vis any minority-interest holders. The same applies to Insurance Investment Entities and therefore these are also excluded from the definition of Intermediate Parent Entity. The treatment of Investment Entities and Insurance Investment Entities is discussed in more detail in the Commentary to Article 7.4 to Article 7.6. To avoid difficult factual determinations and disputes as to whether the Ownership Interests in LTCEs are held by the PE or the Main Entity, PEs are not treated as Parent Entities under the GloBE Rules. In this context, Ownership Interests in an LTCE that are held through a PE are treated, instead, as held by the Main Entity.

15. Article 2.1.2 requires an Intermediate Parent Entity that directly or indirectly owns Ownership Interests in an LTCE at any time during the Fiscal Year to apply the IIR and pay the Top-up Tax based on its “Allocable Share of the Top-up Tax of that Low-Taxed Constituent Entity”. The rules apply in the same way as for a UPE in Article 2.1.1, except that they only apply with respect to the relevant sub-set of Constituent Entities whose Ownership Interests are directly or indirectly owned by the Intermediate Parent Entity. Where the language in Article 2.1.2 mirrors Article 2.1.1, the corresponding part of the Commentary on Article 2.1.1 is also applicable to Article 2.1.2. The Intermediate Parent Entity’s Allocable Share of the Top-up Tax is not limited by the UPE’s allocable share. For example, a UPE (that is located in a jurisdiction without a Qualified IIR) owns 90% of the Ownership Interests of an Intermediate Parent Entity that in turn owns 100% of the Ownership Interests of an LTCE. The Allocable Share of these two Parent Entities in the LTCE is based on the Ownership Interests that they directly or indirectly hold in the LTCE. Therefore, the Intermediate Parent Entity’s Allocable Share of the LTCE’s Top-up Tax is 100%, while the UPE’s Allocable Share of the same LTCE would be 90%.

16. The amount of Ownership Interests held by the Intermediate Parent Entity in the LTCE is not relevant to whether Article 2.1.2 applies. Accordingly, the Intermediate Parent Entity is not required to have a Controlling Interest in the LTCE to apply the IIR as long as the LTCE is a member of the same MNE Group. For example, an Intermediate Parent Entity may hold a 10% Ownership Interest in an LTCE and still be required to apply the IIR in accordance with Article 2.1.2. The amount of Top-up Tax that the Intermediate Parent Entity is required to pay, however, is limited to the Intermediate Parent Entity’s Allocable Share in respect of its Ownership Interest (i.e., equity interest) as set out in Article 2.2.1.

Article 2.1.3

17. The “top-down approach” is embodied in Article 2.1.3, which generally gives priority to apply the IIR to the Parent Entities at the top of the ownership chain. The mechanics of this provision limit the application of Article 2.1.2 to prevent instances of double taxation that would be caused by multiple Parent Entities applying the IIR with respect to the same Ownership Interest in the LTCE.

18. Article 2.1.3 (a) deactivates Article 2.1.2 and prevents the application of the IIR at the Intermediate Parent Entity level when the UPE is required to apply a Qualified IIR for the Fiscal Year. The phrase “required to apply a Qualified IIR” ensures that the exclusion in Article 2.1.3(a) only operates where the domestic tax legislation of the UPE jurisdiction requires the UPE to apply a Qualified IIR. Article 2.1.3(a) would not apply, for example, where the UPE jurisdiction has introduced a Qualified IIR but it is still not in force or the UPE is an Excluded Entity that is outside the scope of such rules.

19. Article 2.1.3(b) regulates the “top-down approach” where two or more Intermediate Parent Entities are required to apply the IIR to the same LTCE. It prevents the application of the IIR at the level of an Intermediate Parent Entity when the Controlling Interests of such Entity are held directly or indirectly by another Intermediate Parent Entity which is required to apply a Qualified IIR.

20. Article 2.1.3(b) does not apply and the IIR is not deactivated if one Intermediate Parent Entity does not have a Controlling Interest in the other Intermediate Parent Entity. Accordingly, the IIR can be applied by more than one Intermediate Parent Entity in the same MNE Group.

Article 2.1.4

21. Article 2.1.4 provides the rules for the application of the IIR by a POPE. The rules in Article 2.1.4 require a POPE that directly or indirectly owns an Ownership Interest in an LTCE at any time during the Fiscal Year to apply the IIR and pay Top-up Tax based on its Allocable Share of the Top-up Tax. The reference in Article 2.1.4 “notwithstanding Article 2.1.1 and 2.1.3” means that the rules apply regardless of whether the UPE or an Intermediate Parent Entity is also required to apply a Qualified IIR. Where the language in Article 2.1.4 mirrors Article 2.1.1, the corresponding part of the Commentary on Article 2.1.1 is also applicable to Article 2.1.4.

Article 2.1.5

22. Article 2.1.5 provides a priority rule for scenarios in which two or more POPEs are situated in the same ownership chain and are required to apply the IIR with respect to the same LTCE. This Article prevents the application of the IIR with respect to a POPE if it is entirely held (directly or indirectly) by another POPE that is also required to apply the IIR, which is consistent with the top-down approach.

23. This paragraph only applies where the POPE is wholly owned by another POPE. This differs from the language of paragraph (b) of Article 2.1.3 (the priority rule for Intermediate Parent Entities), which requires a direct or indirect Controlling Interest by a higher tier Intermediate Parent Entity to deactivate the rule. This nuance is deliberate and addresses structures with minority interests at each level in a partially owned sub-group. Utilising a control test in this context would apply the IIR at higher levels in the partially owned chain, and leave the Top-up Tax attributable to lower-tier minority interests outside the scope of the rule. Accordingly, to prevent distortions and ensure that the appropriate amount of Top-up Tax is taken into account, a POPE must apply the IIR unless it is wholly owned (directly or indirectly) by another POPE that is required to apply a Qualified IIR for the Fiscal Year.

Article 2.1.6

24. Article 2.1.6 requires the application of the IIR by the Parent Entity to Low-Taxed Constituent Entities that are located outside the implementing jurisdiction. It is recognised, however, that some IF members may wish to extend the application of the IIR domestically in order to avoid discriminating between domestic and foreign Constituent Entities that are members of the same MNE Group. In these cases an implementing jurisdiction may introduce further rules that require a Parent Entity to bring into account its share of Top-up Tax attributable to its Ownership Interest in domestic Low-Taxed Constituent Entities together with any Top-up Tax allocated to that Parent Entity itself. Under this approach a Parent Entity located in a Low-taxed Jurisdiction would apply an IIR to its allocable share of Top-up Tax of any domestic Low-Tax Constituent Entities and also apply the IIR in respect of any Top-Up Tax that would otherwise be allocated to the Parent Entity under Article 5.2.4.

25. An IIR that is applied to a Parent Entity’s Ownership Interest in its domestic Low Tax Constituent Entities shall be treated as a Qualified IIR, provided it meets the other requirements set out in the GloBE Rules and the Commentary. The application of such a domestic IIR will remain subject to the operation of the agreed rule order in Chapter 2, including the top-down approach and the split-ownership rules and any Top-up Tax collected under a domestic IIR should be recognised as an IIR tax by other jurisdictions in accordance with the ordinary rules in Chapter 2. Similarly, where a jurisdiction also requires the Parent Entity to apply a domestic IIR to itself, any Top-up Tax payable as a result of the application of that rule is treated as having been brought into charge under an IIR notwithstanding that the tax imposed relates to the Top-up Tax allocated to the Parent Entity itself. Such IIR will be treated as a Qualified IIR under the GloBE Rules provided the circumstances in which such tax is imposed, and the amount of tax brought into charge, is the same as the tax that would have been imposed had the Parent Entity held 100% of the Ownership Interests in itself. The application of a domestic IIR in this situation should be distinguished from a domestic minimum top-up tax that could be applied to all the Constituent Entities located in the same jurisdiction and regardless of whether that Constituent Entity was a Parent Entity required to apply an IIR.

26. For example, assume Hold Co is the UPE of an MNE Group located in jurisdiction A. It owns 100% of the Ownership Interests of B Co 1 which is located in Country B. B Co 1 is also a Parent Entity because it owns 100% of the Ownership Interests of B Sub 1 (also located in Country B). Jurisdictions A and B have introduced the GloBE Rules but, in order to address potential discrimination concerns, Jurisdiction B requires a Parent Entity located in that jurisdiction to apply an IIR to its allocable share of Top-up Tax of any domestic Low-Tax Constituent Entities as well as to any Top-Up Tax that would otherwise be allocated to that Parent Entity under Article 5.2.4. Country B is considered a Low-Tax Jurisdiction for the Fiscal Year. In this scenario, only Hold Co can apply the IIR and collect the Top-up Tax of the Entities located in jurisdiction B in accordance with Articles 2.1.1 and 2.1.3(a). In a case where jurisdiction A has not adopted the GloBE Rules, B Co 1 would then apply the IIR with respect to its allocable share of Top-up Tax of B Sub 1 and B Co 1 should also be treated as applying an IIR in respect of any Top-up Tax that would otherwise be allocated to itself under Article 5.2.4.