If the investment entity is treated as tax transparent in the owner’s jurisdiction anyway, then for tax purposes the income of transparent entities is taxed on the underlying owners. However, for accounting purposes, these entities would generally have their own financial accounts.
Given the GloBE rules rely on financial accounting information, specific additional rules are required to correctly allocate the income of transparent entities in a way that reflects most domestic tax treatment.
If special rules weren’t in place and the tax transparent entity was treated as having GloBE income and covered taxes under the standard GloBE rules, its ETR would often be zero and top-up tax would be due.
The purpose of this is again to try and align the GloBE rules with typical domestic tax treatment.
Investment funds are frequently tax-neutral entities under domestic law, with jurisdictions essentially looking to put investors into the fund in the same position for tax purposes as if they had made a direct investment.
Key amendments to the general GloBE rules are:
• Firstly, the financial accounting net income or loss of a transparent entity or reverse hybrid is reduced by any amounts due to owners that aren’t members of the MNE group.
This is necessary as the GloBE ETR of the group members won’t include income or taxes paid by non-group members.
• Secondly, if the transparent entity or reverse hybrid carries our business through a PE, this needs to be deducted from the accounting income of the transparent entity or reverse hybrid, given that permanent establishments (PEs) are treated as separate constituent entities for GloBE purposes.
• Finally, any remaining amount of the financial accounting income or loss is allocated to the owners if the entity is a transparent entity (based on their ownership interest).
This can flow up the chain if there are a number of transparent owners.
Today the OECD has issued the Agreed Administrative Guidance for the Pillar Two GloBE Rules. This is the final part of the implementation framework for the GloBE Rules.
Yesterday the Financial Accounting Standards Board (FASB) issued a Tentative Decision on the treatment under US GAAP of deferred taxes for the GloBE minimum tax.
See our infographic for the impact of the proposed IASB Pillar 2 amendments to IAS 12 for MNEs with a December 31 year end.
Calculate estimated GloBE top-up tax. Add unlimited companies and jurisdictions via an easy to use control panel to view potential jurisdictional liabilities.
Foreign tax credits interact with the Pillar Two GloBE Rules in a number of ways. In this article we assess the key impact.
Our Modelling Tool takes the underlying source data from the OECD aggregated CbC source data and subjects it to a data manipulation process to provide a drill down into some of the key metrics and data sources that are relevant for Pillar Two on a jurisdictional basis.
Use our members Income Inclusion Rule Calculator to see how the IIR applies. Enter details of the low-taxed entity including jurisdictional GloBE income and other relevant information to determine top-up tax payable by the parent company.
Following the approval of the EU Global Minimum Tax Directive, Taiwan’s Ministry of Finance has stated it will prepare draft legislation for the government to increase Taiwan’s domestic minimum tax rate from 12% to 15%.
However, this creates a number of issues in terms of its interaction with the Pillar Two global minimum tax.
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