The rules consider two types of split ownership situation.
- Consolidated entities: entities or subgroups consolidated in the accounts of the UPE where the UPE has less than a 100% ownership interest
- Non-consolidated JVs: entities or subgroups that are not consolidated in the accounts of the UPE because they are subject to equity accounting but where the UPE’s ownership interest is large enough that the entity or subgroup should be brought into scope of GloBE because of its connection to the main MNE group
The treatment of consolidated entities in which there is a minority interest depends on the size of that interest.
a) UPE’s ownership interest is > 80%
In this situation:
- the entity or subgroup in which there is a minority interest is aggregated with the main group for ETR calculation purposes;
- top-up tax is collected from the UPE of the main group;
- the UPE will only be liable to top-up tax to the extent of its interest in the entity or subgroup i.e. if the UPE has a 90% interest it will only be liable for 90% of the top-up tax due in respect of the entity’s profits; and
- that means the portion of the top-up tax referable to the minority interest (in this example, 10%) will go uncollected.
b) UPE’s ownership interest is =< 80% but > 30%
In this situation:
- the entity or subgroup in which there is a minority interest is still aggregated with the main group for ETR calculation purposes;
- what is different is where the top-up tax is collected from;
- the top-up tax referable to a single entity, or to the parent of a subgroup (referred to as a Partially Owned Parent Entity (POPE)) is still collected from the UPE of the main group;
- however, the top-up tax referable to a POPE’s subsidiaries is now collected from the POPE;
- the effect is that, where the UPE’s interest is below 80%, its share of the top-up tax no longer goes uncollected. By collecting the tax from the POPE, the rules ensure that the minority interest bears its proportionate share of the cost of the additional tax;
- the fact that the top-up tax referable to POPEs and singleton partially owned entities is still collected from the UPE is a slight oddity. It seems to be a function of the design of the rules as a CFC charge: there is no concept of a company charging top-up tax in respect of its own profits, so the tax must be collected from the most sensible parent entity; and
- a consequence of this is that the minority interest’s share of the POPE’s top-up tax will still therefore go uncollected, because the UPE is still only liable to the extent of its interest in the POPE. That leads to difference in outcome depending on whether the activities in which there is a minority interest are carried out by a single entity (in which case some top-up tax goes uncollected) or by several entities in a subgroup (in which case all the top-up tax referable to the subsidiary entities will be collected, and only that referable to the POPE will be partially uncollected).
c) UPE’s ownership interest is =< 30%
- It is possible for an entity or subgroup to be consolidated in a UPE’s accounts even where the UPE has less than a 50% interest in it, if the UPE has other means of securing legal or operational control.
- In such cases, where the UPE’s economic interest is greater than 30% the entity or subgroup will be subject to the treatment described under b) above
- Where the UPE’s economic interest is less than or equal to 30% the entity or subgroup is described as a Minority Owned Constituent Entity (MOCE) or Minority Owned Subgroup (MOS). The GloBE rules effectively de-consolidate MOCEs and MOSs for ETR calculation purposes – their profits and losses will not be blended with those of the main group. (It is worth noting they remain consolidated for the purposes of the revenue threshold.)
- The rules don’t explicitly say which entity should pay the top-up tax in respect of a MOCE or MOS, however it appears that the general charging rules apply. That means, as with POPEs, the UPE of the main group bears the top-up tax in respect of a MOCE and the parent of a MOS, and that subgroup parent (which still meets the definition of a POPE) bears the top-up tax in respect of its subsidiaries.
Non-consolidated joint ventures
The GloBE rules adopt a specific definition of Joint Venture (JV), which is an entity:
- the financial results of which are reported in the UPE’s consolidated accounts under the equity method (i.e. it is not consolidated);
- in which the UPE has an ownership interest of at least 50%; and
- which is not itself the UPE of an MNE group that is subject to GloBE.
There are various types of business structure with split ownership that might be described as a JV for other purposes which do not meet this definition. Those structures will either be subject to the rules for consolidated entities described above or, if they are not consolidated by the UPE, will fall outside of the MNE group.
Under equity accounting a JV’s revenues will not be reported in the UPE’s consolidated accounts. There is nothing in the rules to override this. A group with consolidated revenues below €750m will not therefore be brought into scope of GloBE on account of it having a JV with revenues that, combined with its own revenues, would exceed €750m.
However, where an MNE group does meet the revenue threshold any JVs that it owns will also be brought in scope. The effect is that non-consolidated entities in which a group has a 50%+ interest will be brought within the GloBE rules if they wouldn’t be in-scope in their own right.
A JV and its subsidiaries that are subject to this treatment calculate their ETR as if they were a separate MNE group – there is no blending of profits and covered tax between the main group and the JV. Top-up tax is still collected from the UPE of the main MNE group according to the normal GloBE charging mechanism.
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