Article 5.2.1

15. Article 5.2.1 sets out the formula for computing the Top-up Tax Percentage for each jurisdiction. The Top-up Tax Percentage for a jurisdiction is equal to the percentage point excess of the Minimum Rate over the ETR determined for the jurisdiction under Article 5.1 for the Fiscal Year. For this purpose, the percentage point excess of the Minimum Rate over the ETR is the positive difference, if any, between the Minimum Rate and the ETR of the jurisdiction, expressed as a percentage. For instance, assume a jurisdiction where the ETR is 8.18%, the Top-up Tax Percentage is equal to 6.82% (= 15% – 8.18%).

15.1 The Top-up Tax Percentage for a jurisdiction can in some circumstances exceed the Minimum Rate. This can occur when the MNE Group’s operations in a jurisdiction are profitable for GloBE purposes, i.e. the jurisdiction has GloBE Income, but the MNE Group determines a negative amount of Adjusted Covered Taxes for the jurisdiction. Applying the formula in Article 5.2.1 to a jurisdiction with a negative jurisdictional ETR results in a Top-up Tax Percentage in excess of the Minimum Rate. For instance, assume a jurisdiction where the ETR is -4%, the Top-up Tax Percentage is equal to 19% (= 15% – (-4%)).

15.2 When the Top-up Tax Percentage exceeds the Minimum Rate due to a negative amount of Adjusted Covered taxes, the Inclusive Framework has agreed that an MNE Group shall apply the Negative Tax Expense administrative procedure described below. The rationale justifying Negative Tax Expense administrative procedure set out in the Commentary to Article 4.1.5 apply equally in the context of Article 5.2.1. However, the procedure is mandatory under Article 5.2.1 to ensure that the Substance-based Income Exclusion for the Fiscal Year eliminates only the Top-up Tax attributable to the GloBE Income that the exclusion removed from Excess Profits and does not also eliminate the Top-up Tax attributable to the permanent difference that caused the excess negative tax expense.

15.3 An MNE Group that applies the Negative Tax Expense administrative procedure shall exclude the Negative Tax Expense from its aggregate Adjusted Covered Taxes computed for the Fiscal Year and establish an Excess Negative Tax Expense Carry-forward. The Negative Tax Expense for a Fiscal Year in which the MNE Group has a Top-up Tax Percentage for a jurisdiction that exceeds the Minimum Rate due to negative Adjusted Covered Taxes is equal to the amount of negative Adjusted Covered Taxes. For instance, if a MNE Group has GloBE Income of 100 in a jurisdiction and Adjusted Covered Taxes of -5, the Negative Tax Expense is -5.

15.4 The Excess Negative Tax Expense Carry-forward must be utilised in all relevant subsequent computations of the jurisdictional ETR.

15.5 Should a MNE Group dispose of one or more Constituent Entities in a jurisdiction in which it has applied the Negative Tax Expense administrative procedure, the Negative Tax Expense shall remain an attribute of the transferor group. The MNE Group shall maintain a record of the outstanding balance of the carry-forward. If the MNE Group disposes of all Constituent Entities in a jurisdiction and re-acquires or establishes Constituent Entities in that jurisdiction in a subsequent Fiscal Year, the balance of the Excess Negative Tax Expense Carry-forward shall be taken into account in determining the Adjusted Covered Taxes for the jurisdiction beginning with such Fiscal Year.

16. For purposes of the GloBE Rules, a jurisdiction is considered a Low-Tax Jurisdiction in respect of the MNE Group and the Constituent Entities located in the jurisdiction are considered LTCEs when the ETR is below the Minimum Rate. If the ETR equals or exceeds the Minimum Rate, there is no Top-up Tax Percentage for the jurisdiction and none of the Constituent Entities located in the jurisdiction will be considered LTCEs.

Article 5.2.2

17. Article 5.2.2 sets out the formula for determining the Excess Profit for a jurisdiction. The Excess Profit is the amount of profit, determined on a jurisdictional basis, upon which the Top-up Tax is levied. The Excess Profit for the jurisdiction is the amount remaining after applying a Substance-based Income Exclusion (as determined under Article 5.3) for the jurisdiction. Where a taxpayer elects not to apply the Substance-based Income Exclusion, the Excess profit is equal to the Net GloBE Income for the jurisdiction. If the Substance-based Income Exclusion for the jurisdiction equals or exceeds the Net GloBE Income for the jurisdiction, there will be no Excess Profit, and thus no Top-up Tax computed for that year unless there is Additional Current Top-up Tax for that Fiscal Year.

18. The Excess Profit formula incorporates the Substance-based Income Exclusion into the jurisdictional blending model. The Substance-based Income Exclusion for the jurisdiction is the aggregation of the exclusions computed for each Constituent Entity located in the jurisdiction. The amount computed for a Constituent Entity is not limited by the GloBE Income of the Entity. Thus, if a Constituent Entity incurs a loss or has very little profit for the Fiscal Year, its Substance-based Income Exclusion may nonetheless exclude the profit of other Constituent Entities in the jurisdiction from the reach of the Top-up Tax.

Article 5.2.3

19. Article 5.2.3 provides the formula for computing the Jurisdictional Top-up Tax. This formula is built on the Top-up Tax Percentage computed under Article 5.2.1 and the Excess Profit computed under Article 5.2.2. The Top-up Tax Percentage is multiplied by the Excess Profit of the jurisdiction for the Fiscal Year. The product of that computation is then increased by any Additional Current Top-up Tax computed under Article 4.1.5 and Article 5.4.1 for the Fiscal Year and reduced (but not below zero) by any Qualified Domestic Minimum Top-up Tax in order to arrive at the Jurisdictional Top-up Tax. As explained in more detail in the Commentary to Article 5.4, the Additional Current Top-up Tax is an amount of Top-up Tax added to the current year that is attributable to certain re-calculations of the Top-up Tax in previous years. The amount of Additional Current Top-up Tax for a jurisdiction must be computed before any reduction by a Qualified Domestic Minimum Top-up Tax. However, if the Top-up Tax for the jurisdiction is zero due to the application of a Qualified Domestic Minimum Top-up Tax, Top-up Tax does not need to be allocated among Constituent Entities in the jurisdiction under Articles 5.2.4, 5.2.5, or 5.4.3.

20. Any tax payable pursuant to a Qualified Domestic Minimum Top-up Tax is taken into account at this point in the computation so as to give full credit in the GloBE Top-up Tax computation. Thus, tax payable pursuant to a Qualified Domestic Minimum Top-up Tax can offset the Top-up Tax (including any Additional Current Top-up Tax calculated for the Fiscal Year) that would have been computed under Article 5.2.3 for the Fiscal Year absent the Qualified Domestic Minimum Top-up Tax. A jurisdiction is not required to adopt a Qualified Domestic Minimum Top-up Tax under the common approach. But if it does, the Qualified Domestic Minimum Top-up Tax will in many cases reduce the Top-up Tax to nil under Article 5.2.3. The amount of a Qualified Domestic Minimum Top-up Tax may be different from that determined under the GloBE Rules as a result of different applicable accounting standards as permitted by the definition of Qualified Domestic Minimum Top-up Tax in Article 10.1. This difference may result in an amount of Qualified Domestic Minimum Top-up Tax in excess of the amount of Top-up Tax that would otherwise be computed under Article 5.2.3. The amount of any excess, however, will not reduce the Topup Tax under the GloBE Rules below zero or result in a refund of, or credit against future, Top-up Tax under the GloBE Rules.

20.1 For purposes of Article 5.2.3, the amount of the “Qualified Domestic Minimum Top-up Tax payable” shall be equal to the amount accrued by the Constituent Entities in the jurisdiction in respect of the QDMTT for the Fiscal Year, except that such amount shall not include any amount of QDMTT that:

(a) the MNE Group directly or indirectly challenges in a judicial or administrative proceeding; or

(b) the tax authority of the jurisdiction has determined is not assessable or collectible based on constitutional grounds or other superior law or based on a specific agreement with the government of the QDMTT jurisdiction limiting the MNE Group’s tax liability, such as a tax stabilization agreement, investment agreement, or similar agreement. Any QDMTT that was not included in QDMTT payable pursuant to this paragraph shall be included in QDMTT payable for the Fiscal Year to which it relates when such amount is paid and no longer contested by the MNE Group.

20.2 For example, if the MNE Group computes a QDMTT of EUR 120x for the jurisdiction, but claims that under its stabilization agreement with the government of the jurisdiction its total tax liability in the jurisdiction cannot exceed EUR 100x and therefore it is not liable for EUR 20x of Top-up Tax under the QDMTT. The 20x is not considered QDMTT payable under Article 5.2.3 because that is the amount challenged based on the stabilization agreement. If instead, the MNE Group challenges the full EUR 120x liability based on its stabilization agreement, the amount of QDMTT payable is zero under Article 5.2.3.

20.3 The Inclusive Framework will consider further Administrative Guidance to clarify the meaning of paid or payable in the context of this guidance and to address cases where the QDMTT is not paid within four Fiscal Years or not payable under the GloBE Rules and develop a mechanism of re-computation with the purpose of providing guidance that minimizes the potential for double taxation and double non-taxation under the GloBE Rules.

Article 5.2.4

21. Article 5.2.4 allocates the Jurisdictional Top-up Tax computed for a Low-Tax Jurisdiction among the Constituent Entities in the jurisdiction. Because the Jurisdictional Top-up Tax is computed in Article 5.2.3 by reference to the Net GloBE Income, it is allocated only to Constituent Entities that have GloBE Income for the Fiscal Year; none is allocated to Constituent Entities with GloBE Losses. The allocation only to Constituent Entities that have GloBE Income is accomplished through an allocation key based on the ratio of each Constituent Entity’s GloBE Income for the Fiscal Year to the sum of the GloBE Income of all Constituent Entities located in the jurisdiction that have GloBE Income for the Fiscal Year.

22. Although Top-up Tax is computed on a jurisdictional basis, the IIR charging provisions in Chapter 2 are based on the Parent Entity’s rights to the profits of specific LTCEs. The allocation of Top-up Tax among LTCEs under Article 5.2.4 facilitates the application of the IIR by Parent Entities other than the UPE. POPEs and some Intermediate Parent Entities do not have the same Ownership Interests in the profits of an LTCE as the UPE. If there are multiple LTCEs in the Low-Tax Jurisdiction, the Top-up Tax of each LTCE would be allocable in different proportions to Parent Entities with different Ownership Interests percentages in the various LTCEs. If, however, the UPE is applying an IIR and all of the LTCEs are whollyowned, all of the Top-up Tax computed for the jurisdiction is allocable to the UPE under Chapter 2 and therefore, as a practical matter, the UPE does not need to make the allocation among LTCEs under Article 5.2.4. The allocation of Top-up Tax to specific LTCEs also facilitates application of the UTPR, particularly in cases where part of an LTCE’s Top-up Tax is subject to an IIR and the remainder is subject to the UTPR.

Article 5.2.5

23. Article 5.2.5 addresses situations where Additional Current Top-up Tax is computed for a jurisdiction under Article 5.4.1 and the jurisdiction does not have Net GloBE Income for the Fiscal Year. As a matter of convenience, Article 5.2.4 generally allocates Additional Current Top-up Tax computed under Article 5.4.1 along with Top-up Tax computed for the Fiscal Year among LTCEs under Article 5.2.4 based on the GloBE Income of such Entities. The charging provisions under Article 2.2 allocate Top-up Tax from LTCEs to Parent Entities based on the Parent Entity’s allocable share of their GloBE Income. Where a jurisdiction lacks Net GloBE Income in the current year, it is more appropriate to allocate Additional Current Top-up Tax based on the GloBE Income of the Constituent Entities in the relevant previous years because all of the Top-up Tax was calculated by reference to the Net GloBE Income of those years. Where the UPE is subject to an IIR, the LTCEs are wholly-owned, and there is no POPE in the MNE Group, allocation of Top-up Tax based on the facts of different Fiscal Years will make no difference in the end because all of the Top-up Tax of all Constituent Entities in a jurisdiction would be allocated to the UPE.

24. Additional Current Top-up Tax attributable to the operation of Article 4.1.5 is not allocated pursuant to Article 5.2.5. Such Additional Current Top-up Tax is allocated separately under Article 5.4.3.