Next article>>

Article 2.3 IIR Offset Mechanism

Article 2.3. IIR Offset Mechanism

2.3.1 A Parent Entity that owns an Ownership Interest in a Low-Taxed Constituent Entity indirectly through an Intermediate Parent Entity or a Partially-Owned Parent Entity that is not eligible for an exclusion from the IIR under Article 2.1.3 or 2.1.5 shall reduce its allocable share of a Top-up Tax of the Low-Taxed Constituent Entity in accordance with Article 2.3.2.

2.3.2. The reduction in Article 2.3.1 will be an amount equal to the portion of the Parent Entity’s Allocable Share of the Top-up Tax that is brought into charge by the Intermediate Parent Entity or the Partially-Owned Parent Entity under a Qualified IIR.

Article 2.3.1

38. Article 2.3.1 reduces the Top-up Tax that has been allocated to a Parent Entity where two Parent Entities in the same ownership chain are required to apply an IIR to the same Top-up Tax amount and the potential for overlapping application of the IIR is not solved by the ordering rules in Articles 2.1.3 or 2.1.5. This can occur, for example, where an upper-tier Intermediate Parent Entity has a non-Controlling Interest in a lower-tier Intermediate Parent Entity, which, in turn, holds all the Ownership Interests in an LTCE. In this case, both Parent Entities will be required to apply the IIR under Article 2.1.2 in respect of the LTCE. A similar situation can arise under Articles 2.1.4 and 2.1.5 where a POPE does not hold all of the Ownership Interests of a lower-tier POPE. In this case, both POPEs in the same ownership chain are required to apply the IIR. Article 2.3.1 prevents double taxation in these situations.

Article 2.3.2

39. Article 2.3.2 determines the amount of the Top-up Tax reduction required pursuant to Article 2.3.1. Article 2.3.2 reduces the Top-up Tax that would otherwise be payable under the IIR by the upper-tier Parent Entity by the amount that is brought into charge under a Qualified IIR applied by the lower-tier Parent Entity. The reduction of Top-up Tax is limited to “the portion” of the Top-up Tax that has been allocated to the upper-tier Parent Entity and that “is brought into charge” by the lower-tier Intermediate Parent Entity or POPE. In other words, the reduction is limited to the amount of the upper-tier Parent Entity’s Allocable share of the LTCE’s Top-up Tax that is attributable to Ownership Interests held indirectly through the lowertier Intermediate Parent Entity or POPE that is also obligated to apply the IIR.5 40. Article 2.3 reduces a Parent Entity’s allocable share of a Top-up Tax by the amount allocated to a POPE or Intermediate Parent Entity located in a lower level of the ownership chain. This reduction is made at the moment of allocating the amount of Top-up Tax among Parent Entities and not after the full amount or a portion of the Top-up Tax is effectively paid.

OECD has developed examples regarding this article, which can be found here.

Your Content Goes Here

Country Profile – Japan


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


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


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


<< 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


<< 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


<< 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 [...]