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 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.