1. TO REFRESH ON THE FIRST PART1.1 In the first part of this article
(“Pillar 2: An Introduction To Global Minimum Taxation”, August, 2022
BCAJ), we discussed the evolution and policy objectives of GloBE Rules. The article also discussed different inter-locking mechanisms of GloBE Rules, which ensure that a large MNE Group (turnover as per CFS is = € 750 mn in 2 out of 4 preceding fiscal years) pays at least 15% tax on profits earned in each jurisdiction where it has a presence (in the form of a subsidiary or a permanent establishment (PE)). This is achieved by the imposition of a “top-up tax” (TUT), wherever the effective tax rate (ETR) computed at a jurisdictional level for all subsidiaries/PEs in a jurisdiction is below 15%. For this purpose, each subsidiary or PE is referred to as a “constituent entity” (CE) of the MNE Group.
As a first priority, such TUT can be imposed by the same jurisdiction whose ETR is < 15%. If such jurisdiction fails to impose TUT, it can be imposed by the jurisdiction of the ultimate parent entity (UPE) of the MNE Group or, failing that, by the jurisdiction of the lower tier intermediate parent entities of the MNE Group.
Assuming none of the aforesaid mechanisms can collect TUT, as a last resort, it can be imposed by other jurisdictions where the MNE Group has a presence (in the form of a subsidiary or a PE) which have implemented GloBE Rules.
While the above
