Application of the consolidated revenue threshold to group mergers and demergers
1. For the purposes of this Article, the following definitions apply:
(a)
‘merger’ means any arrangement where:
(i)
all or substantially all of the group entities of two or more separate groups are brought under common control in a way that they constitute entities of a combined group; or
(ii)
an entity that is not a member of any group is brought under common control with another entity or group in a way that they constitute entities of a combined group;
(b)
‘demerger’ means any arrangement where the group entities of a single group are separated into two or more different groups that are no longer consolidated by the same ultimate parent entity.
2. Where two or more groups merge to form a single group in any of the last four consecutive fiscal years immediately preceding the tested fiscal year, the consolidated revenue threshold of the MNE group or large-scale domestic group referred to in Article 2 shall be deemed to be met for any fiscal year prior to the merger if the sum of the revenue included in each of their consolidated financial statements for that fiscal year is EUR 750 000 000 or more.
3. Where an entity that is not a member of a group (the ‘target’) merges with an entity or a group (the ‘acquiring entity’) in the tested fiscal year, and either the target or the acquiring entity did not have consolidated financial statements in any of the last four consecutive fiscal years immediately preceding the tested fiscal year, the consolidated revenue threshold of the MNE group or large-scale domestic group shall be deemed to be met for that year if the sum of the revenue included in each of their financial statements or consolidated financial statements for that fiscal year is EUR 750 000 000 or more.
4. Where a single MNE group or large-scale domestic group within the scope of this Directive demerges into two or more groups (each a ‘demerged group’), the consolidated revenue threshold shall be deemed to be met by a demerged group where:
(a)
with respect to the first tested fiscal year ending after the demerger, the demerged group has an annual revenue of EUR 750 000 000 or more in that fiscal year;
(b)
with respect to the second to fourth tested fiscal years ending after the demerger, the demerged group has an annual revenue of EUR 750 000 000 or more in at least two of those fiscal years.
Constituent entities joining and leaving an MNE group or a large-scale domestic group
1. Where an entity (the ‘target’) becomes or ceases to be a constituent entity of an MNE group or of a large-scale domestic group as a result of a transfer of direct or indirect ownership interests in the target, or where the target becomes the ultimate parent entity of a new group during a fiscal year (the ‘acquisition year’), the target shall be treated as a member of the MNE group or large-scale domestic group for the purposes of this Directive provided that a portion of its assets, liabilities, income, expenses and cash flows is included on a line-by-line basis in the consolidated financial statements of the ultimate parent entity in the acquisition year.
The effective tax rate and top-up tax of the target shall be computed in accordance with paragraphs 2 to 8.
2. In the acquisition year, an MNE group or large-scale domestic group shall take into account only the financial accounting net income or loss and adjusted covered taxes of the target that are included in the consolidated financial statements of the ultimate parent entity for the purposes of this Directive.
3. In the acquisition year, and in each subsequent fiscal year, the qualifying income or loss and adjusted covered taxes of the target shall be based on the historical carrying value of its assets and liabilities.
4. In the acquisition year, the computation of the eligible payroll costs of the target pursuant to Article 28(3) shall take into account only the costs that are reflected in the consolidated financial statements of the ultimate parent entity.
5. The computation of the carrying value of the eligible tangible assets of the target pursuant to Article 28(4) shall be adjusted, where applicable, in proportion to the period of time in which the target was a member of the MNE group or large-scale domestic group during the acquisition year.
6. With the exception of the qualifying loss deferred tax asset as referred to in Article 23, the deferred tax assets and deferred tax liabilities of a target that are transferred between MNE groups or large-scale domestic groups shall be taken into account by the acquiring MNE group or large-scale domestic group in the same manner and to the same extent as if the acquiring MNE group or large-scale domestic group controlled the target when such assets and liabilities arose.
7. Deferred tax liabilities of the target that have previously been included in its total deferred tax adjustment amount shall be treated as reversed, for the purposes of Article 22(7), by the disposing MNE group or large-scale domestic group and as arising from the acquiring MNE group or large-scale domestic group in the acquisition year, except that in such a case any subsequent reduction of covered taxes pursuant to Article 22(7) shall have effect in the year in which the amount is recaptured.
8. Where the target is a parent entity and is a group entity in two or more MNE groups or large-scale domestic groups during the acquisition year, it shall apply separately the IIR to its allocable shares of the top-up tax of low-taxed constituent entities determined for each MNE group or large-scale domestic group.
9. By way of derogation from paragraphs 1 to 8, the acquisition or disposal of a controlling interest in a target shall be treated as an acquisition or disposal of assets and liabilities if the jurisdiction in which the target is located, or in the case of a tax transparent entity the jurisdiction in which the assets are located, treats the acquisition or disposal of that controlling interest in the same, or in a similar, manner as an acquisition or disposal of assets and liabilities, and imposes a covered tax on the seller based on the difference between the tax basis and the consideration paid in exchange for the controlling interest or the fair value of the assets and liabilities.
Transfer of assets and liabilities
1. For the purposes of this Article, the following definitions apply:
(a)
‘reorganisation’ means a transformation or transfer of assets and liabilities such as in a merger, demerger, liquidation or similar transaction where:
(i)
the consideration for the transfer is, in whole or in significant part, equity interests issued by the acquiring constituent entity or by a person connected with the acquiring constituent entity, or, in the case of a liquidation, equity interests of the target, or, when no consideration is provided, where the issuance of an equity interest would have no economic significance;
(ii)
the disposing constituent entity’s gain or loss on those assets is not subject to tax, in whole or in part; and
(iii)
the tax laws of the jurisdiction in which the acquiring constituent entity is located require the acquiring constituent entity to compute taxable income after the disposal or acquisition using the disposing constituent entity’s tax basis in the assets, adjusted for any non-qualifying gain or loss on the disposal or acquisition;
(b)
‘non-qualifying gain or loss’ means the lesser of the gain or loss of the disposing constituent entity arising in connection with a reorganisation that is subject to tax in the disposing constituent entity’s location and the financial accounting gain or loss arising in connection with the reorganisation.
2. A constituent entity that disposes of assets and liabilities (the ‘disposing constituent entity’) shall include the gain or loss arising from such disposal in the computation of its qualifying income or loss.
A constituent entity that acquires assets and liabilities (the ‘acquiring constituent entity’) shall determine its qualifying income or loss on the basis of its carrying value of the acquired assets and liabilities determined under the financial accounting standard used in preparing consolidated financial statements of the ultimate parent entity.
3. By way of derogation from paragraph 2, where a disposal or acquisition of assets and liabilities is performed in the context of a reorganisation:
(a)
the disposing constituent entity shall exclude any gain or loss arising from such disposal from the computation of its qualifying income or loss; and
(b)
the acquiring constituent entity shall determine its qualifying income or loss on the basis of the carrying value of the acquired assets and liabilities of the disposing constituent entity upon disposal.
4. By way of derogation from paragraphs 2 and 3, where the disposal of assets and liabilities is performed in the context of a reorganisation which results, for the disposing constituent entity, in a non-qualifying gain or loss:
(a)
the disposing constituent entity shall include the gain or loss on the disposal in the computation of its qualifying income or loss to the extent of the non-qualifying gain or loss; and
(b)
the acquiring constituent entity shall determine its qualifying income or loss after the acquisition using the disposing constituent entity’s carrying value of the acquired assets and liabilities upon disposal, as adjusted consistently with local tax rules of the acquiring constituent entity to account for the non-qualifying gain or loss.
5. At the election of the filing constituent entity, where a constituent entity is required or permitted to adjust the basis of its assets and the amount of its liabilities to fair value for tax purposes in the jurisdiction where it is located, such constituent entity may:
(a)
include, in the computation of its qualifying income or loss, an amount of gain or loss in respect of each of its assets and liabilities, which shall be:
(i)
equal to the difference between the carrying value for financial accounting purposes of the asset or liability immediately before the date of the event that triggered the tax adjustment (the ‘triggering event’) and the fair value of the asset or liability immediately after the triggering event; and
(ii)
decreased (or increased) by the non-qualifying gain or loss, if any, arising in connection with the triggering event;
(b)
use the fair value for financial accounting purposes of the asset or liability immediately after the triggering event to compute qualifying income or loss in the fiscal years ending after the triggering event; and
(c)
include the net total of the amounts determined in point (a) in the constituent entity’s qualifying income or loss in one of the following ways:
(i)
the net total of those amounts is included in the fiscal year in which the triggering event occurs; or
(ii)
an amount equal to the net total of those amounts divided by five is included in the fiscal year in which the triggering event occurs and in each of the immediate four subsequent fiscal years, unless the constituent entity leaves the MNE group or large-scale domestic group in a fiscal year within this period, in which case the remaining amount will be wholly included in that fiscal year.
Joint ventures
1. For the purposes of this Article, the following definitions apply:
(a)
‘joint venture’ means an entity whose financial results are reported under the equity method in the consolidated financial statements of the ultimate parent entity, provided that the ultimate parent entity holds, directly or indirectly, at least 50 % of its ownership interest.
A joint venture does not include:
(i)
an ultimate parent entity of an MNE group or of a large-scale domestic group that is to apply the IIR;
(ii)
an excluded entity as defined by Article 2(3);
(iii)
an entity whose ownership interests held by the MNE group or large-scale domestic group are held directly through an excluded entity referred to in Article 2(3) and which meets one of the following conditions:
—
it operates exclusively or almost exclusively to hold assets or invest funds for the benefit of its investors;
—
it carries out activities that are ancillary to those carried out by the excluded entity; or
—
substantially all of its income is excluded from the computation of qualifying income or loss in accordance with Article 16(2), points (b) and (c).
(iv)
an entity that is held by an MNE group or large-scale domestic group composed exclusively of excluded entities; or
(v)
a joint venture affiliate;
(b)
‘joint venture affiliate’ means:
(i)
an entity whose assets, liabilities, income, expenses and cash flows are consolidated by a joint venture under an acceptable financial accounting standard or would have been consolidated had the joint venture been required to consolidate such assets, liabilities, income, expenses and cash flows under an acceptable financial accounting standard; or
(ii)
a permanent establishment whose main entity is a joint venture or an entity referred to in point (i). In such cases the permanent establishment shall be treated as a separate joint venture affiliate.
2. A parent entity that holds a direct or indirect ownership interest in a joint venture or a joint venture affiliate shall apply the IIR with respect to its allocable share of the top-up tax of that joint venture or joint venture affiliate in accordance with Articles 5 to 10.
3. The computation of the top-up tax of the joint venture and its joint venture affiliates (together a ‘joint venture group’) shall be made in accordance with Chapters III to VII, as if they were constituent entities of a separate MNE group or large-scale domestic group and the joint venture was the ultimate parent entity of that group.
4. The top-up tax due by the joint venture group shall be reduced by each parent entity’s allocable share of the top-up tax under paragraph 2 of each member of the joint venture group that is brought into charge under paragraph 3. Any remaining amount of top-up tax shall be added to the total UTPR top-up tax amount pursuant to Article 14(2).
For the purposes of this paragraph, ‘top-up tax due by the joint venture group’ means the parent entity’s allocable share of the top-up tax of the joint venture group.
Multi-parented MNE groups
1. For the purposes of this Article, the following definitions apply:
(a)
‘multi-parented MNE group or large-scale domestic group’ means two or more groups where the ultimate parent entities enter into an arrangement that is a stapled structure or a dual-listed arrangement that includes at least one entity or permanent establishment of the combined group which is located in a different jurisdiction with respect to the location of the other entities of the combined group;
(b)
‘stapled structure’ means an arrangement entered into by two or more ultimate parent entities of separate groups under which:
(i)
50 % or more of the ownership interests in the ultimate parent entities of separate groups which are, if they are listed, quoted at a single price, and are, by reason of form of ownership, restrictions on transfer, or other terms or conditions, combined with each other, and cannot be transferred or traded independently; and
(ii)
one of the ultimate parent entities prepares consolidated financial statements in which the assets, liabilities, income, expenses and cash flows of all the entities of the groups concerned are presented together as those of a single economic unit and that are required by a regulatory regime to be externally audited;
(c)
‘dual-listed arrangement’ means an arrangement entered into by two or more ultimate parent entities of separate groups under which:
(i)
the ultimate parent entities agree to combine their business by contract alone;
(ii)
pursuant to contractual arrangements the ultimate parent entities will make distributions, with respect to dividends and in liquidation, to their shareholders based on a fixed ratio;
(iii)
the ultimate parent entities’ activities are managed as a single economic unit under contractual arrangements while retaining their separate legal identities;
(iv)
the ownership interests of the ultimate parent entities that comprise the agreement are quoted, traded or transferred independently in different capital markets; and
(v)
the ultimate parent entities prepare consolidated financial statements in which the assets, liabilities, income, expenses and cash flows of entities in all of the groups are presented together as those of a single economic unit, and are required by a regulatory regime to be externally audited.
2. Where entities and constituent entities of two or more groups form part of a multi-parented MNE group or large-scale domestic group, the entities and constituent entities of each group shall be treated as members of one multi-parented MNE group or large-scale domestic group.
An entity, other than an excluded entity referred to in Article 2(3), shall be treated as a constituent entity if it is consolidated on a line-by-line basis by the multi-parented MNE group or large-scale domestic group or if its controlling interests are held by entities in the multi-parented MNE group or large-scale domestic group.
3. The consolidated financial statements of the multi-parented MNE group or large-scale domestic group shall be the combined consolidated financial statements referred to in the definitions of a stapled structure or a dual-listed arrangement in paragraph 1, prepared under an acceptable financial accounting standard, which is deemed to be the accounting standard of the ultimate parent entity.
4. The ultimate parent entities of the separate groups that compose the multi-parented MNE group or large-scale domestic group shall be the ultimate parent entities of the multi-parented MNE group or large-scale domestic group.
When applying this Directive in respect of a multi-parented MNE group or large-scale domestic group, any references to an ultimate parent entity shall apply, as required, as if they are references to multiple ultimate parent entities.
5. The parent entities of the multi-parented MNE group or large-scale domestic group located in a Member State, including each ultimate parent entity, shall apply the IIR in accordance with Articles 5 to 10 with respect to their allocable share of the top-up tax of the low-taxed constituent entities.
6. The constituent entities of the multi-parented MNE group or large-scale domestic group located in a Member State shall apply the UTPR in accordance with Articles 12, 13 and 14, taking into account the top-up tax of each low-taxed constituent entity that is a member of the multi-parented MNE group or large-scale domestic group.
7. The ultimate parent entities of the multi-parented MNE group or large-scale domestic group shall be required to file the top-up tax information return in accordance with Article 44 unless they appoint a single designated filing entity within the meaning of Article 44(3), point (b). That return shall include information concerning each of the groups that compose the multi-parented MNE group or large-scale domestic group.
Source: EUR-Lex (Publications Office of the EU), © European Union, reuse permitted under Commission Decision 2011/833/EU.
