Blended CFC Regimes and Avoiding Unrelievable CFC Taxes

Under Article 4.3.2(c) of the OECD Model Rules, tax paid under a CFC regime is generally allocated for GloBE purposes to the CFC entity.

However, Article 5.1.3 of the February 2023 OECD Administrative Guidance confirms that this is not the case for Qualified Domestic Minimum Top-Up Taxes (QDMTTs) given this could create a ‘feedback loop’ if the QDMTT was itself creditable.

This means that when calculating the effective tax rate for calculating top-up tax under a QDMTT, any taxes allocated under CFC regimes are not included.

However, there is another interaction between CFC taxes and QDMTT regimes as any top-up tax under a QDMTT is itself added to covered taxes of the CFC but only for the purposes of calculating the allocation of Blended CFC Taxes.

The way the rules operate is aimed at minimising unrelievable CFC taxes under Blended CFC Regimes.