Ultimate parent entity in the Union
1. Member States shall ensure that an ultimate parent entity that is a constituent entity located in a Member State is subject to the top-up tax (the ‘IIR top-up tax’) for the fiscal year in respect of its low-taxed constituent entities that are located in another jurisdiction or that are stateless.
2. Member States shall ensure that, where a constituent entity that is the ultimate parent entity of an MNE group or of a large-scale domestic group is located in a Member State that is a low-tax jurisdiction, it is subject to the IIR top-up tax in respect of itself and of all low-taxed constituent entities of the group located in the same Member State for the fiscal year.
Intermediate parent entity in the Union
1. Member States shall ensure that an intermediate parent entity located in a Member State and held by an ultimate parent entity that is located in a third-country jurisdiction is subject to the IIR top-up tax for the fiscal year in respect of its low-taxed constituent entities that are located in another jurisdiction or that are stateless.
2. Member States shall ensure that, where an intermediate parent entity is located in a Member State that is a low-tax jurisdiction and held by an ultimate parent entity that is located in a third-country jurisdiction, it is subject to the IIR top-up tax in respect of itself and of its low-taxed constituent entities located in the same Member State for the fiscal year.
3. Paragraphs 1 and 2 shall not apply where:
(a)
the ultimate parent entity is subject to a qualified IIR for that fiscal year; or
(b)
another intermediate parent entity is located in a jurisdiction where it is subject to a qualified IIR for that fiscal year and owns, directly or indirectly, a controlling interest in the intermediate parent entity.
Intermediate parent entity located in the Union and held by an excluded ultimate parent entity
1. Member States shall ensure that, where an intermediate parent entity located in a Member State is held by an ultimate parent entity that is an excluded entity, it is subject to the IIR top-up tax for the fiscal year in respect of its low-taxed constituent entities that are located in another jurisdiction or that are stateless.
2. Member States shall ensure that, where an intermediate parent entity located in a Member State that is a low-tax jurisdiction is held by an ultimate parent entity that is an excluded entity, it is subject to the IIR top-up tax in respect of itself and its low-taxed constituent entities that are located in the same Member State for the fiscal year.
3. Paragraphs 1 and 2 shall not apply where another intermediate parent entity is located in a jurisdiction where it is subject to a qualified IIR for that fiscal year and owns, directly or indirectly, a controlling interest in the intermediate parent entity referred to in paragraphs 1 and 2.
Partially-owned parent entity in the Union
1. Member States shall ensure that a partially-owned parent entity located in a Member State is subject to the IIR top-up tax for the fiscal year in respect of its low-taxed constituent entities that are located in another jurisdiction or that are stateless.
2. Member States shall ensure that, where a partially-owned parent entity is located in a Member State that is a low-tax jurisdiction, it is subject to the IIR top-up tax in respect of itself and of its low-taxed constituent entities located in the same Member State for the fiscal year.
3. Paragraphs 1 and 2 shall not apply where the ownership interests of the partially-owned parent entity are wholly held, directly or indirectly, by another partially-owned parent entity that is subject to a qualified IIR for that fiscal year.
Allocation of the top-up tax under the IIR
1. The IIR top-up tax due by a parent entity in respect of a low-taxed constituent entity pursuant to Article 5(1), Article 6(1), Article 7(1) and Article 8(1) shall be equal to the top-up tax of the low-taxed constituent entity, as computed in accordance with Article 27, multiplied by the parent entity’s allocable share in such top-up tax for the fiscal year.
2. A parent entity’s allocable share in the top-up tax with respect to a low-taxed constituent entity shall be the proportion of the parent entity’s ownership interest in the qualifying income of the low-taxed constituent entity. That proportion shall be equal to the qualifying income of the low-taxed constituent entity for the fiscal year, reduced by the amount of such income attributable to ownership interests held by other owners, divided by the qualifying income of the low-taxed constituent entity for the fiscal year.
The amount of qualifying income attributable to ownership interests in a low-taxed constituent entity held by other owners shall be the amount that would have been treated as attributable to such owners under the principles of the acceptable financial accounting standard used in the ultimate parent entity’s consolidated financial statements if the low-taxed constituent entity’s net income were equal to its qualifying income and:
(a)
the parent entity had prepared consolidated financial statements in accordance with that accounting standard (the ‘hypothetical consolidated financial statements’);
(b)
the parent entity owned a controlling interest in the low-taxed constituent entity such that all of the income and expenses of the low-taxed constituent entity were consolidated on a line-by-line basis with those of the parent entity in the hypothetical consolidated financial statements;
(c)
all of the low-taxed constituent entity’s qualifying income were attributable to transactions with persons that are not group entities; and
(d)
all ownership interests not directly or indirectly held by the parent entity were held by persons other than group entities.
3. In addition to the amount allocated to a parent entity in accordance with paragraph 1 of this Article, the IIR top-up tax due by a parent entity pursuant to Article 5(2), Article 6(2), Article 7(2) and Article 8(2) shall include, for the fiscal year, in accordance with Article 27:
(a)
the full amount of top-up tax computed for that parent entity; and
(b)
the amount of top-up tax computed for its low-taxed constituent entities located in the same Member State multiplied by the parent entity’s allocable share in such top-up tax for the fiscal year.
IIR offset mechanism
Where a parent entity located in a Member State holds an ownership interest in a low-taxed constituent entity indirectly through an intermediate parent entity or a partially-owned parent entity that is subject to a qualified IIR for the fiscal year, the top-up tax due pursuant to Articles 5 to 8 shall be reduced by an amount equal to the portion of the first-mentioned parent entity’s allocable share of the top-up tax which is due by the intermediate parent entity or the partially-owned parent entity.
Election to apply a qualified domestic top-up tax
1. Member States may elect to apply a qualified domestic top-up tax.
If a Member State where constituent entities of an MNE group or of a large-scale domestic group are located elects to apply a qualified domestic top-up tax, all low-taxed constituent entities of the MNE group or the large-scale domestic group in that Member State shall be subject to that domestic top-up tax for the fiscal year.
Under a qualified domestic top-up tax, the domestic excess profits of the low-taxed constituent entities may be computed based on an acceptable financial accounting standard or an authorised financial accounting standard permitted by the authorised accounting body and adjusted to prevent any material competitive distortions, rather than the financial accounting standard used in the consolidated financial statements.
2. Where a parent entity of an MNE group or of a large-scale domestic group is located in a Member State, and its directly or indirectly held constituent entities located either in that Member State or in another jurisdiction are subject to a qualified domestic top-up tax for the fiscal year in those jurisdictions, the amount of any top-up tax computed in accordance with Article 27 due by the parent entity pursuant to Articles 5 to 8 shall be reduced, up to zero, by the amount of qualified domestic top-up tax due either by itself or by those constituent entities.
Notwithstanding the first subparagraph, if the qualified domestic top-up tax has been computed for a fiscal year in accordance with the ultimate parent entity’s acceptable financial accounting standard or International Financial Reporting Standards (IFRS or IFRS as adopted by the Union pursuant to Regulation (EC) No 1606/2002), no top-up tax shall be computed in accordance with Article 27 for that fiscal year in respect of the constituent entities of that MNE group or large-scale domestic group located in that Member State. This subparagraph is without prejudice to the computation of any additional top-up tax pursuant to Article 29 in the case where a Member State does not apply a qualified domestic top-up tax to collect any additional top-up tax arising under Article 29.
3. Where the amount of qualified domestic top-up tax for a fiscal year has not been paid within the four fiscal years following the fiscal year in which it was due, the amount of qualified domestic top-up tax that was not paid shall be added to the jurisdictional top-up tax computed in accordance with Article 27(3) and shall not be collected by the Member State which made the election pursuant to paragraph 1 of this Article.
4. Member States that elect to apply a qualified domestic top-up tax shall notify the Commission of that election within four months following the adoption of their national laws, regulations and administrative provisions introducing a qualified domestic top-up tax. Such election shall be valid and may not be revoked for a period of three years. At the end of each period of three years, the election shall be renewed automatically, unless the Member State revokes its election. Any revocation of the election shall be notified to the Commission no later than four months before the end of the three-year period.
Application of a UTPR across the MNE group
1. Where the ultimate parent entity of an MNE group is located in a third-country jurisdiction that does not apply a qualified IIR, or where the ultimate parent entity of an MNE group is an excluded entity, Member States shall ensure that the constituent entities located in the Union are subject, in the Member State in which they are located, to an adjustment equal to the UTPR top-up tax amount allocated to that Member State for the fiscal year in accordance with Article 14.
For that purpose, such adjustment may take the form of either a top-up tax due by those constituent entities or a denial of deduction against the taxable income of those constituent entities resulting in an amount of tax liability necessary to collect the UTPR top-up tax amount allocated to that Member State.
2. Where a Member State applies the adjustment pursuant to paragraph 1 of this Article in the form of a denial of deduction against taxable income, such adjustment shall apply to the extent possible with respect to the taxable year in which the fiscal year for which the UTPR top-up tax amount was computed and allocated to a Member State in accordance with Article 14 ends.
Any UTPR top-up tax amount that remains due with respect to a fiscal year as a result of the application of a denial of deduction against taxable income for that fiscal year shall be carried forward to the extent necessary and shall be subject, with respect to each following fiscal year, to the adjustment pursuant to paragraph 1 until the full UTPR top-up tax amount allocated to that Member State for that fiscal year has been paid.
3. Constituent entities that are investment entities shall not be subject to this Article.
Application of the UTPR in the jurisdiction of an ultimate parent entity
1. Where the ultimate parent entity of an MNE group is located in a low-tax third country jurisdiction, Member States shall ensure that the constituent entities located in the Union are subject, in the Member State in which they are located, to an adjustment equal to the UTPR top-up tax amount allocated to that Member State for the fiscal year in accordance with Article 14.
For that purpose, such adjustment may take the form of either a top-up tax due by those constituent entities or a denial of deduction against the taxable income of those constituent entities resulting in an amount of tax liability necessary to collect the UTPR top-up tax amount allocated to that Member State.
The first subparagraph shall not apply where the ultimate parent entity in a low-tax third-country jurisdiction is subject to a qualified IIR in respect of itself and its low-taxed constituent entities located in that jurisdiction.
2. Where a Member State applies the adjustment pursuant to paragraph 1 of this Article in the form of a denial of deduction against taxable income, such adjustment shall apply to the extent possible with respect to the taxable year in which the fiscal year for which the UTPR top-up tax amount was computed and allocated to a Member State in accordance with Article 14 ends.
Any UTPR top-up tax amount that remains due with respect to a fiscal year as a result of the application of a denial of deduction against taxable income for that fiscal year shall be carried forward to the extent necessary and shall be subject, with respect to each following fiscal year, to the adjustment pursuant to paragraph 1 until the full UTPR top-up tax amount allocated to that Member State for that fiscal year has been paid.
3. Constituent entities that are investment entities shall not be subject to this Article.
Computation and allocation of the UTPR top-up tax amount
1. The UTPR top-up tax amount allocated to a Member State shall be computed by multiplying the total UTPR top-up tax, as determined in accordance with paragraph 2, by the Member State’s UTPR percentage, as determined in accordance with paragraph 5.
2. The total UTPR top-up tax for a fiscal year shall be equal to the sum of the top-up tax computed for each low-taxed constituent entity of the MNE group for that fiscal year in accordance with Article 27, subject to the adjustments set out in paragraphs 3 and 4 of this Article.
3. The UTPR top-up tax of a low-taxed constituent entity shall be equal to zero where, for the fiscal year, all of the ultimate parent entity’s ownership interests in such low-taxed constituent entity are held directly or indirectly by one or more parent entities that are required to apply a qualified IIR in respect of that low-taxed constituent entity for that fiscal year.
4. Where paragraph 3 does not apply, the UTPR top-up tax of a low-taxed constituent entity shall be reduced by a parent entity’s allocable share of the top-up tax of that low-taxed constituent entity that is brought into charge under qualified IIR.
5. A Member State’s UTPR percentage shall be computed, for each fiscal year and for each MNE group, according to the following formula:
where:
(a)
the number of employees in the Member State is the total number of employees of all the constituent entities of the MNE group located in that Member State;
(b)
the number of employees in all UTPR jurisdictions is the total number of employees of all the constituent entities of the MNE group located in a jurisdiction that has a qualified UTPR in force for the fiscal year;
(c)
the total value of tangible assets in the Member State is the sum of the net book value of tangible assets of all the constituent entities of the MNE group located in that Member State;
(d)
the total value of tangible assets in all UTPR jurisdictions is the sum of the net book value of tangible assets of all the constituent entities of the MNE group located in a jurisdiction that has a qualified UTPR in force for the fiscal year.
6. The number of employees shall be the number of employees on a full-time equivalent basis of all constituent entities located in the relevant jurisdiction, including independent contractors provided that they participate in the ordinary operating activities of the constituent entity.
The tangible assets shall include the tangible assets of all constituent entities located in the relevant jurisdiction but shall not include cash or cash equivalent, intangible or financial assets.
7. The employees whose payroll costs are included in the separate financial accounts of a permanent establishment as determined by Article 18(1) and adjusted in accordance with Article 18(2) shall be allocated to the jurisdiction in which the permanent establishment is located.
Tangible assets included in the separate financial accounts of a permanent establishment as determined by Article 18(1) and adjusted in accordance with Article 18(2) shall be allocated to the jurisdiction in which the permanent establishment is located.
The number of employees and the tangible assets allocated to the jurisdiction of a permanent establishment shall not be taken into account for the number of employees and the tangible assets of the jurisdiction of the main entity.
The number of employees and the net book value of tangible assets held by an investment entity shall be excluded from the elements of the formula set out in paragraph 5.
The number of employees and the net book value of tangible assets of a flow-through entity shall be excluded from the elements of the formula set out in paragraph 5, unless they are allocated to a permanent establishment or, in the absence of a permanent establishment, to the constituent entities that are located in the jurisdiction where the flow-through entity was created.
8. By way of derogation from paragraph 5, a jurisdiction’s UTPR percentage for an MNE group shall be deemed to be zero for a fiscal year as long as the UTPR top-up tax amount allocated to that jurisdiction in a prior fiscal year has not resulted in the constituent entities of that MNE group located in that jurisdiction having an additional cash tax expense equal, in total, to the UTPR top-up tax amount for that prior fiscal year allocated to that jurisdiction.
The number of employees and the net book value of tangible assets of the constituent entities of an MNE group which is located in a jurisdiction with a UTPR percentage of zero for a fiscal year shall be excluded from the elements of the formula for allocating the total UTPR top-up tax to the MNE group for that fiscal year.
9. Paragraph 8 shall not apply for a fiscal year if all jurisdictions with a qualified UTPR in force for the fiscal year have a UTPR percentage of zero for the MNE group for that fiscal year.
Source: EUR-Lex (Publications Office of the EU), © European Union, reuse permitted under Commission Decision 2011/833/EU.
