Determination of the effective tax rate
1. The effective tax rate of an MNE group or of a large-scale domestic group shall be computed, for each fiscal year and for each jurisdiction provided that there is net qualifying income in the jurisdiction, in accordance with the following formula:
where the adjusted covered taxes of the constituent entities are the sum of the adjusted covered taxes of all the constituent entities located in the jurisdiction determined in accordance with Chapter IV.
2. The net qualifying income or loss of the constituent entities in the jurisdiction for a fiscal year shall be determined in accordance with the following formula:
where:
(a)
the qualifying income of the constituent entities is the positive sum, if any, of the qualifying income of all constituent entities located in the jurisdiction determined in accordance with Chapter III;
(b)
the qualifying losses of the constituent entities are the sum of the qualifying losses of all constituent entities located in the jurisdiction determined in accordance with Chapter III.
3. Adjusted covered taxes and qualifying income or loss of constituent entities that are investment entities shall be excluded from the computation of the effective tax rate in accordance with paragraph 1 and the computation of the net qualifying income in accordance with paragraph 2.
4. The effective tax rate of each stateless constituent entity shall be computed, for each fiscal year, separately from the effective tax rate of all other constituent entities.
Computation of the top-up tax
1. Where the effective tax rate of a jurisdiction in which constituent entities are located is below the minimum tax rate for a fiscal year, the MNE group or a large-scale domestic group shall compute the top-up tax separately for each of its constituent entities that have qualifying income included in the computation of net qualifying income of that jurisdiction. The top-up tax shall be computed on a jurisdictional basis.
2. The top-up tax percentage for a jurisdiction for a fiscal year shall be the positive percentage point difference, if any, computed in accordance with the following formula:
where the effective tax rate is the rate computed in accordance with Article 26.
3. The jurisdictional top-up tax for a fiscal year shall be the positive amount, if any, computed in accordance with the following formula:
where:
(a)
the additional top-up tax is the amount of tax as determined in accordance with Article 29 for the fiscal year;
(b)
the domestic top-up tax is the amount of tax for the fiscal year as determined in accordance with Article 11 or under a qualified domestic top-up tax of a third-country jurisdiction.
4. The excess profit for the jurisdiction for the fiscal year referred to in paragraph 3 shall be the positive amount, if any, computed in accordance with the following formula:
where:
(a)
the net qualifying income is the income determined in accordance with Article 26(2) for the jurisdiction;
(b)
the substance-based income exclusion is the amount determined in accordance with Article 28 for the jurisdiction.
5. The top-up tax of a constituent entity for the current fiscal year shall be computed in accordance with the following formula:
where:
(a)
the qualifying income of the constituent entity for a jurisdiction for a fiscal year is the income determined in accordance with Chapter III;
(b)
the aggregate qualifying income of all constituent entities for a jurisdiction for a fiscal year is the sum of the qualifying income of all the constituent entities located in the jurisdiction for the fiscal year.
6. If the jurisdictional top-up tax results from a recomputation pursuant to Article 29(1) and there is no net qualifying income in the jurisdiction for the fiscal year, the top-up tax shall be allocated to each constituent entity using the formula set out in paragraph 5 of this Article, based on the qualifying income of the constituent entities in the fiscal years for which the recomputations pursuant to Article 29(1) are performed.
7. The top-up tax of each stateless constituent entity shall be computed, for each fiscal year, separately from the top-up tax of all other constituent entities.
Substance-based income exclusion
1. For the purposes of this Article, the following definitions apply:
(a)
‘eligible employees’ means full-time or part-time employees of a constituent entity and independent contractors participating in the ordinary operating activities of the MNE group or large-scale domestic group under the direction and control of the MNE group or large-scale domestic group;
(b)
‘eligible payroll costs’ means employee compensation expenditures, including salaries, wages and other expenditures that provide a direct and separate personal benefit to the employee, such as health insurance and pension contributions, payroll and employment taxes, and employer social security contributions;
(c)
‘eligible tangible assets’ means:
(i)
property, plant and equipment located in the jurisdiction;
(ii)
natural resources located in the jurisdiction;
(iii)
a lessee’s right of use of tangible assets located in the jurisdiction; and
(iv)
a licence or similar arrangement from the government for the use of immovable property or exploitation of natural resources that entails significant investment in tangible assets.
2. Unless a filing constituent entity of an MNE group or of a large-scale domestic group elects, in accordance with Article 45(2), not to apply the substance-based income exclusion for the fiscal year, the net qualifying income for a jurisdiction shall be reduced, for the purpose of computing the top-up tax, by an amount equal to the sum of the payroll carve-out referred to in paragraph 3 of this Article and the tangible asset carve-out referred to in paragraph 4 of this Article for each constituent entity located in the jurisdiction.
3. The payroll carve-out of a constituent entity located in a jurisdiction shall be equal to 5 % of its eligible payroll costs of eligible employees who perform activities for the MNE group or large-scale domestic group in such jurisdiction, with the exception of eligible payroll costs that are:
(a)
capitalised and included in the carrying value of eligible tangible assets;
(b)
attributable to income that is excluded in accordance with Article 17.
4. The tangible asset carve-out of a constituent entity located in a jurisdiction shall be equal to 5 % of the carrying value of the eligible tangible assets located in the jurisdiction, with the exception of:
(a)
the carrying value of property, including land and buildings, that is held for sale, lease or investment;
(b)
the carrying value of tangible assets used to derive income that is excluded in accordance with Article 17.
5. For the purposes of paragraph 4, the carrying value of eligible tangible assets shall be the average of the carrying value of eligible tangible assets at the beginning and end of the fiscal year, as recorded for the purpose of preparing the consolidated financial statements of the ultimate parent entity, reduced by any accumulated depreciation, amortisation and depletion and increased by any amount attributable to the capitalisation of payroll expenses.
6. For the purposes of paragraphs 3 and 4, the eligible payroll costs and eligible tangible assets of a constituent entity which is a permanent establishment shall be those that are included in its separate financial accounts in accordance with Article 18(1) and (2), provided that the eligible payroll costs and eligible tangible assets are located in the same jurisdiction as the permanent establishment.
The eligible payroll costs and eligible tangible assets of a permanent establishment shall not be taken into account for the eligible payroll costs and eligible tangible assets of the main entity.
Where the income of a permanent establishment was wholly or partially excluded pursuant to Article 19(1) and Article 38(5), the eligible payroll costs and eligible tangible assets of such permanent establishment shall be excluded in the same proportion from the computation under this Article for the MNE group or large-scale domestic group.
7. Eligible payroll costs of eligible employees paid by, and eligible tangible assets owned by, a flow-through entity that are not allocated under paragraph 6 shall be allocated to:
(a)
the constituent entity-owners of the flow-through entity, in proportion to the amount allocated to them pursuant to Article 19(4), provided that the eligible employees and eligible tangible assets are located in the jurisdiction of the constituent entity-owners; and
(b)
the flow-through entity if it is the ultimate parent entity, reduced in proportion to the income excluded from the computation of the qualifying income of the flow-through entity pursuant to Article 38(1) and (2), provided that the eligible employees and eligible tangible assets are located in the jurisdiction of the flow-through entity.
All other eligible payroll costs and eligible tangible assets of the flow-through entity shall be excluded from the substance-based income exclusion computations of the MNE group or large-scale domestic group.
8. The substance-based income exclusion of each stateless constituent entity shall be computed, for each fiscal year, separately from the substance-based income exclusion of all other constituent entities.
9. The substance-based income exclusion computed under this Article shall not include the payroll carve-out and the tangible asset carve-out of constituent entities that are investment entities in that jurisdiction.
Additional top-up tax
1. Where, pursuant to Article 11(3), Article 16(7), Article 22(6), Article 25(1) and (4) and Article 40(5), an adjustment to covered taxes or qualifying income or loss results in the recomputation of the effective tax rate and top-up tax of the MNE group or the large-scale domestic group for a prior fiscal year, the effective tax rate and top-up tax shall be recomputed in accordance with the rules set out in Articles 26, 27 and 28. Any amount of incremental top-up tax arising from such recomputation shall be treated as an additional top-up tax for the purposes of Article 27(3) for the fiscal year during which the recomputation is made.
2. Where there is an additional top-up tax and no net qualifying income for the jurisdiction for the fiscal year, the qualifying income of each constituent entity located in that jurisdiction shall be an amount equal to the top-up tax allocated to such constituent entities pursuant to Article 27(5) and (6) divided by the minimum tax rate.
3. Where, pursuant to Article 21(5), additional top-up tax is due, the qualifying income of each constituent entity located in the jurisdiction shall be an amount equal to the top-up tax allocated to such constituent entity divided by the minimum tax rate. The allocation shall be made pro-rata, to each constituent entity, based on the following formula:
The additional top-up tax shall only be allocated to constituent entities that record an amount of adjusted covered tax that is less than zero and less than the qualifying income or loss of such constituent entities multiplied by the minimum tax rate.
4. Where a constituent entity is allocated additional top-up tax in accordance with this Article and Article 27(5) and (6), such constituent entity shall be treated as a low-taxed constituent entity for the purposes of Chapter II.
De minimis exclusion
1. By way of derogation from Articles 26 to 29 and Article 31, at the election of the filing constituent entity, the top-up tax due for the constituent entities located in a jurisdiction shall be equal to zero for a fiscal year if, for such fiscal year:
(a)
the average qualifying revenue of all constituent entities located in such jurisdiction is less than EUR 10 000 000; and
(b)
the average qualifying income or loss of all constituent entities in such jurisdiction is a loss or is less than EUR 1 000 000.
The election shall be made annually in accordance with Article 45(2).
2. The average qualifying revenue or average qualifying income or loss referred to in paragraph 1 shall be the average of the qualifying revenue or qualifying income or loss of the constituent entities located in the jurisdiction for the fiscal year and the two preceding fiscal years.
If there are no constituent entities with qualifying revenue or qualifying loss located in the jurisdiction in the first or second preceding fiscal year, or both, such fiscal year or years shall be excluded from the computation of the average qualifying revenue or qualifying income or loss of that jurisdiction.
3. The qualifying revenue of the constituent entities located in a jurisdiction for a fiscal year shall be the sum of all the revenues of the constituent entities located in that jurisdiction, reduced or increased by any adjustment carried out in accordance with Chapter III.
4. The qualifying income or loss of the constituent entities located in a jurisdiction for a fiscal year shall be the net qualifying income or loss of that jurisdiction as computed in accordance with Article 26(2).
5. The de minimis exclusion set out in paragraphs 1 to 4 shall not be applicable to stateless constituent entities and investment entities. The revenue and qualifying income or loss of such entities shall be excluded from the computation of the de minimis exclusion.
Minority-owned constituent entities
1. For the purposes of this Article, the following definitions apply:
(a)
‘minority-owned constituent entity’ means a constituent entity in which the ultimate parent entity has a direct or indirect ownership interest of 30 % or less;
(b)
‘minority-owned parent entity’ means a minority-owned constituent entity that holds, directly or indirectly, the controlling interests of another minority-owned constituent entity, except where the controlling interests of the former entity are held, directly or indirectly, by another minority-owned constituent entity;
(c)
‘minority-owned subgroup’ means a minority-owned parent entity and its minority-owned subsidiaries; and
(d)
‘minority-owned subsidiary’ means a minority-owned constituent entity whose controlling interests are held, directly or indirectly, by a minority-owned parent entity.
2. The computation of the effective tax rate and the top-up tax for a jurisdiction in accordance with Chapters III to VII with respect to members of a minority-owned subgroup shall apply as if each minority-owned subgroup were a separate MNE group or large-scale domestic group.
The adjusted covered taxes and qualifying income or loss of members of a minority-owned subgroup shall be excluded from the determination of the residual amount of the effective tax rate of the MNE group or large-scale domestic group computed in accordance with Article 26(1) and from the net qualifying income computed in accordance with Article 26(2).
3. The effective tax rate and top-up tax of a minority-owned constituent entity that is not a member of a minority-owned subgroup shall be computed on an entity basis in accordance with Chapters III to VII.
The adjusted covered taxes and qualifying income or loss of the minority-owned constituent entity shall be excluded from the determination of the residual amount of the effective tax rate of the MNE group or large-scale domestic group computed in accordance with Article 26(1) and from the net qualifying income computed in accordance with Article 26(2).
This paragraph shall not apply to a minority-owned constituent entity that is an investment entity.
Safe harbours
By way of derogation from Articles 26 to 31, Member States shall ensure that, at the election of the filing constituent entity, the top-up tax due by a group in a jurisdiction shall be deemed to be zero for a fiscal year if the effective level of taxation of the constituent entities located in that jurisdiction fulfils the conditions of a qualifying international agreement on safe harbours.
For the purposes of the first paragraph, ‘qualifying international agreement on safe harbours’ means an international set of rules and conditions which all Member States have consented to and which grants groups in the scope of this Directive the possibility of electing to benefit from one or more safe harbours for a jurisdiction.
Source: EUR-Lex (Publications Office of the EU), © European Union, reuse permitted under Commission Decision 2011/833/EU.
