Article 2.5.1

70. Article 2.5.1 provides the starting point for the computation of the UTPR Top-up Tax amount and ensures that the aggregate adjustments made under the UTPR in each jurisdiction do not exceed the total amount of Top-up Tax computed for all Low-tax Jurisdictions where the MNE Group is operating.

71. In accordance with the methodology described in Article 5.2, the amount of Top-up Tax that is allocable under the UTPR is determined in respect of each Constituent Entity located in a jurisdiction where the MNE’s jurisdictional ETR is below the Minimum Rate (i.e. an LTCE). The Total UTPR Top-up Tax Amount is equal to the sum of the Top-up Tax calculated for each of these LTCEs, taking into account the relevant provisions of the GloBE Rules that may affect the calculation of the Top-up Tax, such as Article 5.6 for a Minority-Owned Constituent Entity, as well as Article 7.4 or Article 7.6 for an Investment Entity. The Top-up Tax calculated for each of these LTCEs may be subject to adjustments, as provided in Articles 2.5.2, 2.5.3 and Article 9.3. In relation to JVs and JV Subsidiaries, Article 6.4.1(c) increases the Total UTPR Top-up Tax Amount taken into account for purposes of Article 2.5.1 in respect of a JV Group Top-up Tax that has not been brought into charge under a Qualified IIR. The Total UTPR Top-up Tax Amount taking into account those adjustments is then allocated amongst the UTPR Jurisdictions in accordance with the mechanism set out in Article 2.6.

Article 2.5.2

72. Article 2.5.2 and Article 2.5.3 relate to the Top-up Tax that is computed in relation to the profit of an LTCE that is subject to one or more Qualified IIRs. In that context, the IIR takes priority over the UTPR. Article 2.5.2 applies when the Parent Entity or Entities that apply the IIR collectively hold all of the UPE’s Ownership Interests in the LTCE. Article 2.5.3, discussed further in the Commentary below, applies in situations where the Parent Entity or Entities that apply the IIR do not hold all of the UPE’s Ownership Interests in the LTCE.

73. Article 2.5.2 provides that the Top-up Tax calculated for an LTCE shall be reduced to zero if all of the UPE’s Ownership Interests in such LTCE are held directly or indirectly by a Parent Entity or Entities that are required to apply a Qualified IIR in the jurisdiction where they are located with respect to that LTCE for the Fiscal Year.

74. In the situation where no IIR applies at the UPE level, a lower level Parent Entity may be required to apply the IIR as provided under Article 2.1. If the UPE’s Ownership Interest in an LTCE is held indirectly through a Parent Entity that is required to apply the IIR, then no Top-up Tax shall be allocated under the UTPR for such LTCE. Whether or not the amount of Top-up Tax may be reduced to zero in accordance with this rule is determined on an entity-by-entity basis. This means that the determination is made for each LTCE.

75. It is possible that several Parent Entities are required to apply a Qualified IIR in respect of several LTCEs. It is also possible that the Ownership Interests of a given LTCE are held by several Parent Entities that are located in the same jurisdiction and required to apply a Qualified IIR. In such a case, the Ownership Interests held by each Parent Entity are taken into account for the purposes of this test. If all of the UPE’s Ownership Interests in an LTCE are held through various Parent Entities that are required to apply a Qualified IIR, no Top-up Tax shall be allocated under the UTPR in respect of such LTCE.

Application of UTPR to low tax profits in UPE Jurisdiction

76. The fact that the UPE is required to apply a Qualified IIR does not mean there is no scope for the operation of the UTPR with respect to Constituent Entities located in the UPE Jurisdiction. Where the UPE is required to apply a Qualified IIR for the Fiscal Year, it may only be required under the laws of the UPE Jurisdiction to apply the IIR in respect of PEs and subsidiaries located in other jurisdictions. In this case, no Top-up Tax will be allocated under the UTPR in respect of foreign LTCEs (i.e. located outside of the UPE Jurisdiction). There could be, however, Top-up Tax allocable under the UTPR in respect of the domestic LTCEs (i.e. located in the UPE Jurisdiction) if the ETR of the UPE Jurisdiction is below the Minimum Rate. That Top-up Tax may be reduced to zero by virtue of a Qualified Domestic Minimum Topup Tax payable in the UPE Jurisdiction under Article 5.2.3. In the case where the UPE is required to apply a domestic IIR with respect to domestic LTCEs, the Top-up Tax may also be reduced to zero under Article 2.5.2 (see Commentary on Article 2.1.6). If the Top-up Tax arising in the UPE Jurisdiction is not reduced to zero, it will be included in the UTPR Top-up Tax Amount and allocated to each UTPR Jurisdiction in accordance with Article 2.6, discussed further in the Commentary below.

Article 2.5.3

77. It is expected that, in most cases, either the LTCEs will be wholly-owned by another Constituent Entity that is subject to a Qualified IIR (and the UTPR will not apply) or their shares will be wholly-owned by other Constituent Entities that are not subject to an IIR (and the UTPR will apply). There may be situations, however, where an Intermediate Parent Entity owns an interest in an LTCE and applies the IIR in respect of its share of the income of such LTCE under Article 2.1.2, but the application of the IIR in the Intermediate Parent Entity’s jurisdiction does not result in all the Top-up Tax attributable to the UPE’s Ownership Interests being brought into charge under a Qualified IIR. This situation could arise, for example where the UPE (located in a jurisdiction without a Qualified IIR) owns a larger interest in the LTCE than the Intermediate Parent Entity does. In this case, rather than excluding the whole amount of Top-up Tax from charge under Article 2.5.2, the amount of Top-up Tax levied under the Qualified IIR in the Intermediate Parent Entity’s jurisdiction is deducted from the total Top-up Tax of the LTCE. This mechanism ensures that the IIR has priority over the UTPR, and avoids multiple taxation of the same low-taxed income as a result of the GloBE Rules. The Ownership Interests in the LTCE may also be held by different Parent Entities that, together, own less than the UPE’s Ownership Interests in the LTCE. In such cases, the sum of Top-up Taxes that is allocated to each Parent Entity is deducted from the total Top-up Tax Amount that is allocated under the UTPR pursuant to Article 2.5.3.8

78. Because Article 2.5.3 reduces the Total UTPR Top-up Tax Amount by the amount of Top-up Tax subject to the IIR (rather than reducing it to zero), it leaves, within the charge to tax, low-taxed income that is beneficially owned by minority shareholders. Unlike the exclusion mechanism under Article 2.5.2, this deduction mechanism under Article 2.5.3 does not allow the MNE Group to limit the total amount of Topup Tax payable to the allocable share of Top-up Tax that would have been allocated to the UPE if the UPE had been subject to a Qualified IIR with respect of the LTCE. Equally, it does not require a determination of whether a POPE would have been subject to tax under the IIR because of the ownership structure of the MNE Group or the Allocable Share of Top-up Tax that would have been allocated to that POPE. Instead, Article 2.5.3 deducts the tax due under an IIR from the amount of Top-up Tax that is computed on the total amount of income of the LTCE, irrespective of the UPE’s Allocable Share of the Top-up Tax due in respect of the LTCE. Applying the UTPR to the total amount of Top-up Tax of an LTCE (i.e. not limited to the UPE’s Ownership Interest in the LTCE) simplifies its application. It allows for a greater tax expense than the Top-up Tax that would have been collected under the IIR if it had applied at the UPE level, because it is not limited to the UPE’s Allocable Share of the Top-up Tax due in respect of LTCE