Global Minimum Tax Act (S.C. 2024, c. 17, s. 81)

DIVISION 3Computation of Adjusted Covered Taxes

SUBDIVISION AAdjusted Covered Taxes

Marginal note:Definition of adjusted covered taxes

• 22 (1) The adjusted covered taxes, of a constituent entity of an MNE group for a fiscal year, means the current tax expense, in respect of covered taxes, in the constituent entity’s financial accounts for the fiscal year, adjusted by the following:

  • (a) the positive or negative amount determined by the formula

    A − B

    where

    A

    is the total of the additions to covered taxes, in respect of the constituent entity for the fiscal year, under subsection (2), and

    B

    is the total of the reductions to covered taxes, in respect of the constituent entity for the fiscal year, under subsection (3);

  • (b) the total deferred tax adjustment amount of the constituent entity for the fiscal year, unless paragraph 26(b) or (c) applies in respect of the year and the jurisdiction in which the constituent entity is located; and

  • (c) each amount recorded in the equity or other comprehensive income of the constituent entity for the fiscal year that can reasonably be considered to relate to an increase or decrease in respect of covered taxes, if

    • (i) the covered taxes are in respect of an amount (referred to in this paragraph as the “included amount”) included in the constituent entity’s GloBE income or loss for the fiscal year, and

    • (ii) the included amount is subject to tax under the laws of the jurisdiction in which the constituent entity is located.

• Marginal note:Adjusted covered taxes — additions

  (2) For the purposes of subsection (1), each of the following amounts is an addition to covered taxes in respect of a constituent entity of an MNE group for a fiscal year:

  • (a) an amount recorded as an expense, in respect of covered taxes, in profit before taxation in the constituent entity’s financial accounts for the fiscal year;

  • (b) the constituent entity’s share of a GloBE loss deferred tax asset of the MNE group that is reversed in the fiscal year;

  • (c) an amount paid, in respect of covered taxes, in the fiscal year to the extent that the amount

    • (i) relates to an uncertain tax position, and

    • (ii) was treated as a reduction to the constituent entity’s covered taxes for a preceding fiscal year under paragraph (3)(d); and

  • (d) an amount of a credit or refund — or an amount in respect of a transfer — in respect of a qualified refundable tax credit or a marketable transferable tax credit, that is recorded as a reduction in the current tax expense, in respect of covered taxes, in the financial accounts of the constituent entity for the fiscal year.

• Marginal note:Adjusted covered taxes — reductions

  (3) For the purposes of subsection (1), each of the following amounts is a reduction to covered taxes in respect of a constituent entity for a fiscal year:

  • (a) in respect of an amount of income that is not included in computing the constituent entity’s GloBE income or loss,

    • (i) any portion of the constituent entity’s current tax expense, in respect of covered taxes, in its financial accounts (referred to in this subsection as “relevant current tax expense”) for the fiscal year that relates to the amount of income, or

    • (ii) any portion of an addition to covered taxes, in respect of the constituent entity for the fiscal year under subsection (2), that relates to the amount of income;

  • (b) in respect of a tax credit (other than a qualified refundable tax credit, marketable transferable tax credit or tax credit the tax benefit of which is a flow-through tax benefit) that is used to reduce the constituent entity’s liability for a covered tax,

    • (i) if the tax credit is a non-marketable transferable tax credit that was purchased by the constituent entity, the amount by which the face value of the tax credit exceeds its purchase price in proportion to the amount of the tax credit used to reduce the constituent entity’s liability for a covered tax for a taxable period that ends during the fiscal year, except any amount that is recorded as a reduction to the constituent entity’s relevant current tax expense for the fiscal year, and

    • (ii) in any other case, the portion of the tax credit that is

      • (A) used to reduce the constituent entity’s liability for a covered tax for a taxable period that ends during the fiscal year, and

      • (B) not recorded as a reduction to the constituent entity’s relevant current tax expense for the fiscal year;

  • (c) in respect of the transfer of a non-marketable transferable tax credit (other than a tax credit the tax benefit of which is a flow-through tax benefit),

    • (i) if the constituent entity is an originator of the tax credit, any amount received by the constituent entity in exchange for the transfer of the tax credit during the fiscal year, and

    • (ii) if the constituent entity is a purchaser of the tax credit and transfers the tax credit to another person during the fiscal year, the amount of any gain on that transfer;

  • (d) any portion of any amount that is credited or refunded to the constituent entity (other than in respect of a qualified refundable tax credit, marketable transferable tax credit or tax credit the tax benefit of which is a flow-through tax benefit), in respect of covered taxes, that is not treated as an adjustment to the constituent entity’s relevant current tax expense for the fiscal year;

  • (e) any portion of the constituent entity’s relevant current tax expense for the fiscal year that relates to an uncertain tax position; and

  • (f) any portion of the constituent entity’s relevant current tax expense for the fiscal year that is not expected to be paid on or before the day that is three years after the day on which the fiscal year ends.

• Marginal note:Adjusted covered taxes — special regimes

  (4) For greater certainty,

  • (a) if an amount is excluded in computing the GloBE income of a constituent entity under subsection 20(1), the entity’s adjusted covered taxes are to be reduced proportionally; and

  • (b) if an amount is excluded in computing the GloBE income of a constituent entity under subsection 21(1), the entity’s adjusted covered taxes (other than the taxes for which a dividend deduction under that subsection was allowed) are to be reduced proportionally.

• Marginal note:Adjusted covered taxes — no double counting

  (5) For the purposes of determining a constituent entity’s adjusted covered taxes, an amount, in respect of covered taxes, is not to be taken into account more than once in determining the adjusted covered taxes of

  • (a) a constituent entity for a particular fiscal year or another fiscal year; or

  • (b) more than one constituent entity for a particular fiscal year or another fiscal year.

Marginal note:Definition of covered taxes

• 23 (1) Covered taxes means taxes (other than excluded taxes) that

  • (a) are recorded in the financial accounts of a particular constituent entity in respect of its

    • (i) income or profits, or

    • (ii) share of the income or profits of another entity that is

      • (A) a group entity in respect of the particular constituent entity, and

      • (B) an entity in which the particular constituent entity holds, directly or indirectly, an ownership interest;

  • (b) are imposed under an eligible distribution tax system;

  • (c) are imposed in lieu of an income or profits tax of general application; or

  • (d) are charged by reference to

    • (i) retained earnings and corporate equity, or

    • (ii) multiple components consisting of retained earnings, corporate equity and income or profits.

• Marginal note:Definition of excluded taxes

  (2) Excluded taxes means

  • (a) any tax under a qualified IIR;

  • (b) any tax under a qualified domestic minimum top-up tax;

  • (c) any tax under, or as a result of the application of, a qualified UTPR;

  • (d) a disqualified refundable imputation tax; and

  • (e) a tax paid or accrued by an insurance company in respect of returns to policyholders.

SUBDIVISION BAllocation of Covered Taxes

Marginal note:Allocation of covered taxes to a permanent establishment

• 24 (1) An amount in respect of covered taxes is allocated from a particular constituent entity to a permanent establishment for a fiscal year if

  • (a) the permanent establishment is a group entity in respect of the particular constituent entity; and

  • (b) the amount is

    • (i) recorded in the financial accounts of the particular constituent entity, and

    • (ii) in respect of the GloBE income or loss of the permanent establishment for the fiscal year.

• Marginal note:Permanent establishment loss

  (2) If subsection 18(26) applies in respect of a permanent establishment and the main entity in respect of the permanent establishment, the following rules apply:

  • (a) a deferred tax expense in respect of a deferred tax asset is excluded in computing the adjusted covered taxes of the permanent establishment and the main entity if

    • (i) the deferred tax asset is attributable to a tax loss arising in the jurisdiction in which the permanent establishment is located, and

    • (ii) the loss is treated as an expense of the main entity under paragraph 18(26)(a); and

  • (b) if covered taxes arise in the jurisdiction in which the permanent establishment is located in respect of income (referred to in this paragraph as the “allocated income”) of the permanent establishment that is included in computing the GloBE income or loss of the main entity for a fiscal year under paragraph 18(26)(b), the covered taxes are allocated from the permanent establishment to the main entity for the fiscal year, to the extent of the lesser of

    • (i) the amount of the covered taxes, and

    • (ii) the amount determined by the formula

      A × B

      where

      A

      is the allocated income, and

      B

      is the highest rate of corporate tax on ordinary income in the jurisdiction where the main entity is located.

• Marginal note:Allocation — tax transparent entities

  (3) An amount in respect of covered taxes is allocated from a tax transparent entity to its constituent entity-owner, to the extent that

  • (a) the constituent entity-owner holds an ownership interest in the tax transparent entity; and

  • (b) the amount is

    • (i) recorded in the financial accounts of the tax transparent entity, and

    • (ii) in respect of any portion of the net income or loss of the tax transparent entity that is included in computing the financial accounting income of the constituent entity-owner because of paragraphs 17(6)(b) and (c).

• Marginal note:Allocation — controlled foreign companies

  (4) The following rules apply for the purposes of allocating, to a constituent entity (referred to in this subsection as the “controlled foreign company”) of an MNE group, amounts in respect of covered taxes to which a constituent entity-owner of the controlled foreign company is subject under a controlled foreign company tax regime:

  • (a) subject to paragraphs (b) and (c), an amount in respect of covered taxes arising in a fiscal year is allocated from the constituent entity-owner to the controlled foreign company, if

    • (i) the constituent entity-owner is located in one jurisdiction (referred to in this paragraph as the “parent jurisdiction”) and the controlled foreign company is located in another jurisdiction (referred to in this subsection as the “subsidiary jurisdiction”), and

    • (ii) the amount is

      • (A) recorded in the financial accounts of the constituent entity-owner for the fiscal year, and

      • (B) in respect of covered taxes, imposed under a controlled foreign company tax regime of the parent jurisdiction, applicable in respect of the constituent entity-owner’s share of the controlled foreign company’s income;

  • (b) for the purposes of clause (a)(ii)(B), in the case of covered taxes imposed under a blended controlled foreign company tax regime that are recorded in the financial accounts of a constituent entity-owner for a fiscal year that is a transitional special allocation year, the amount in respect of the covered taxes applicable in respect of the constituent entity-owner’s share of the controlled foreign company’s income for the fiscal year is deemed to be equal to the amount determined by the formula

    A × B ÷ C

    where

    A

    is the total amount, in respect of covered taxes imposed under the blended controlled foreign company tax regime, that is recorded in the financial accounts of the constituent entity-owner for the fiscal year,

    B

    is the amount determined by the formula

    D × E

    where

    D

    is the constituent entity-owner’s share of the income of the controlled foreign company, as determined under the blended controlled foreign company tax regime in computing the covered taxes, and

    E

    is the result of the formula

    F − G

    where

    F

    is the lowest rate that, if it were the corporate tax rate applicable in the subsidiary jurisdiction, would result in the tax charge in the subsidiary jurisdiction in respect of the controlled foreign company being sufficient to prevent a tax charge on the constituent entity-owner under the blended controlled foreign company tax regime in respect of its share of the income of the controlled foreign company for the fiscal year, and

    G

    is the rate that would be the effective tax rate of the MNE group for the subsidiary jurisdiction for the fiscal year, if the jurisdictional adjusted covered taxes of the MNE group for the subsidiary jurisdiction were

    • (i) determined without regard to any covered taxes imposed under a controlled foreign company tax regime, and

    • (ii) increased by an amount equal to the tax payable for the fiscal year, in respect of the standard constituent entities of the MNE group that are located in the subsidiary jurisdiction, under a qualified domestic minimum top-up tax of the subsidiary jurisdiction, to the extent the blended controlled foreign company tax regime allows a foreign tax credit for that tax payable on the same terms as any other creditable covered tax, and

    C

    is the total of all amounts each of which is an amount that would be determined for B if

    • (i) all references in the description of B to “the controlled foreign company” and “the subsidiary jurisdiction” were read as references to “an entity in which the constituent entity-owner holds an ownership interest” and “the jurisdiction where the entity is located”, respectively, and

    • (ii) where an entity is located in a jurisdiction for which an effective tax rate of the MNE group is not determined for the fiscal year, the effective tax rate of the MNE group for that jurisdiction for the year were determined based on the aggregate income and taxes recorded in the financial accounts of all entities, that are located in the jurisdiction, in which the constituent entity-owner holds an ownership interest, and as if those entities were constituent entities of the MNE group; and

  • (c) if the covered taxes, in respect of which an amount would, in the absence of this paragraph, be allocated from the constituent entity-owner to the controlled foreign company under paragraph (a), are applicable in whole or in part in respect of passive income of the controlled foreign company, the amount allocated under paragraph (a) in respect of the portion of the covered taxes that are applicable in respect of the passive income is not to exceed the lesser of

    • (i) the amount that would, in the absence of this paragraph, be allocated under paragraph (a) in respect of the portion of the covered taxes that are applicable in respect of the passive income, and

    • (ii) the amount determined by the formula

      A × B

      where

      A

      is the amount of the controlled foreign company’s passive income included under the controlled foreign company tax regime in computing the covered taxes, and

      B

      is the top-up percentage of the MNE group for the subsidiary jurisdiction, determined without regard to any amount that is described in subparagraph (i).

• Marginal note:Allocation — hybrid entities

  (5) The following rules apply for the purposes of allocating amounts in respect of covered taxes from a constituent entity-owner to a constituent entity (referred to in this subsection as the “hybrid entity”) of an MNE group that is a hybrid entity in relation to the constituent entity-owner:

  • (a) subject to paragraph (b), an amount in respect of covered taxes (referred to in this subsection as the “covered taxes amount”) recorded in the financial accounts of the constituent entity-owner for a fiscal year is allocated from the constituent entity-owner to the hybrid entity to the extent the covered taxes are in respect of income of the hybrid entity; and

  • (b) if the covered taxes are, in whole or in part, in respect of passive income of the hybrid entity, the amount to be allocated from the constituent entity-owner to the hybrid entity under paragraph (a), in respect of the portion of the covered taxes that are in respect of the hybrid entity’s passive income, is not to exceed the lesser of

    • (i) the portion of the covered taxes amount that is in respect of the hybrid entity’s passive income, and

    • (ii) the amount determined by the formula

      A × B

      where

      A

      is the amount of the hybrid entity’s passive income that is included in computing the covered taxes of the constituent entity-owner under the fiscal transparency rule in the jurisdiction where it is located, and

      B

      is the top-up percentage of the MNE group for the jurisdiction where the hybrid entity is located, determined without regard to the portion of the covered taxes amount that is in respect of the hybrid entity’s passive income.

• Marginal note:Allocation — distributions

  (6) An amount in respect of covered taxes (referred to in this subsection as the “covered taxes amount”) for a fiscal year is allocated from a constituent entity-owner to a particular constituent entity in which it holds a direct ownership interest, if the covered taxes amount is

  • (a) recorded in the financial accounts of the constituent entity-owner for the fiscal year; and

  • (b) in respect of a dividend or similar amount, in respect of the direct ownership interest, that is distributed — or deemed, under the tax laws of the jurisdiction in which the particular constituent entity is located, to be distributed — by the particular constituent entity to the constituent entity-owner in the fiscal year.