(8) The ultimate parent entity of an MNE group or of a large-scale domestic group, where that parent entity directly or
indirectly owns a controlling interest in all other constituent entities of the MNE group or large-scale domestic
group, stands at the heart of the system. Since the ultimate parent entity is normally required to consolidate the
financial accounts of all the entities of the MNE group or large-scale domestic group or, if that is not the case, would
be so required under an acceptable financial accounting standard, it holds critical information and would be best
placed to ensure that the level of taxation per jurisdiction for the group complies with the agreed minimum tax rate.
Where the ultimate parent entity is located in the Union, it should therefore incur the primary obligation under this
Directive to apply the IIR to its allocable share of top-up tax relating to all low-taxed constituent entities of the MNE
group, whether they are located in or outside the Union. The ultimate parent entity of a large-scale domestic group
should apply the IIR to the entire amount of top-up tax in respect of its low-taxed constituent entities.
(9) In certain circumstances, that obligation to apply the IIR should move down to other constituent entities of the MNE
group located in the Union. First, when the ultimate parent entity is an excluded entity or is located in a third-
country jurisdiction that has not implemented the OECD Model Rules or equivalent rules and thus does not have a
qualified IIR, intermediate parent entities situated below the ultimate parent entity in the ownership chain and
located in the Union should be obliged under this Directive to apply the IIR up to their allocable share of the top-up
tax. However, where an intermediate parent entity that is required to apply the IIR owns a controlling interest in
another intermediate parent entity, the IIR should be applied by the first-mentioned intermediate parent entity.
(10) Second, regardless of whether the ultimate parent entity is located in a jurisdiction that has a qualified IIR, partially-
owned parent entities located in the Union that are more than 20 % owned by interest holders outside the group
should be obliged under this Directive to apply the IIR up to their allocable share of the top-up tax. Such partially-
owned parent entities should however not apply the IIR when they are wholly-owned by another partially-owned
parent entity which is required to apply the IIR. Third, when the ultimate parent entity is an excluded entity or is
located in a jurisdiction without a qualified IIR, the constituent entities of the group should apply the UTPR to any
residual amount of top-up tax that has not been subject to the IIR in proportion to an allocation formula based on
their number of employees and tangible assets. Fourth, where the ultimate parent entity is located in a third-country
jurisdiction with a qualified IIR, the constituent entities of the MNE group should apply the UTPR to the constituent
entities located in that third-country jurisdiction, in cases where that third-country jurisdiction is low-taxed based on
the effective tax rate of all constituent entities in that jurisdiction, including that of the ultimate parent entity.
(11) In accordance with the policy objectives of the global minimum tax reform regarding fair tax competition amongst
jurisdictions, the computation of the effective tax rate should take place at a jurisdictional level. For the purpose of
computing the effective tax rate, this Directive should provide for a common set of specific rules for the
computation of the tax base, referred to as ‘qualifying income or loss’, and for the taxes paid, referred to as ‘covered
taxes’. The starting point should be the financial accounts used for consolidation purposes, which should then be
subject to a series of adjustments, including accommodating timing differences, in order to avoid any distortions
between jurisdictions. Furthermore, the qualifying income or loss and the covered taxes of certain entities should be
allocated to other, relevant entities within the MNE group to ensure neutrality in the tax treatment of qualifying
income or loss that might be subject to covered taxes in several jurisdictions, either because of the nature of the
entities (for example, flow-through entities, hybrid entities or permanent establishments) or because of the specific
tax treatment of the income (for example, dividend payment or controlled foreign company tax regime). As regards
covered taxes, this Directive should be interpreted in the light of any further guidance provided by the OECD, which
should be taken into account by Member States in order to ensure a uniform identification of the covered taxes of all
Member States and third-country jurisdictions.
(12) The effective tax rate of an MNE group in each jurisdiction where it carries out activities or of a large-scale domestic
group should be compared to the agreed minimum tax rate of 15 % in order to determine whether the MNE group
or large-scale domestic group should be liable to pay a top-up tax and consequently should apply the IIR or the
UTPR. The minimum tax rate of 15 % agreed by the OECD/G20 Inclusive Framework on BEPS reflects a balance
amongst corporate tax rates worldwide. In cases where the effective tax rate of an MNE group falls below the
minimum tax rate in a given jurisdiction, the top-up tax should be allocated to the entities in the MNE group that
are liable to pay that tax in accordance with the application of the IIR and the UTPR, in order to comply with the
globally agreed minimum effective rate of 15 %. In cases where the effective tax rate of a large-scale domestic group
falls below the minimum tax rate, the ultimate parent entity of the large-scale domestic group should apply the IIR in
respect of its low-taxed constituent entities, in order to ensure that such group is liable to pay tax at an effective
minimum tax rate of 15 %.
EN
Official Journal of the European Union 22.12.2022 L 328/3