In the attached slides, we look at:
- How Covered Taxes linked to CFC inclusions are allocated back to the Constituent Entity under the GloBE Model Rules
- How Qatar and Kuwait approach CFC allocation in their DMTT rules
- A simple comparison of CFC “push-down” mechanics in 0% vs 10% scenarios in Qatar
The first slide illustrates two things:
- On the left, we have a Kazakhstan ultimate parent entity (UPE) that calculates CFC tax in Kazakhstan at a 20% rate. The CFC tax paid by the UPE in Kazakhstan canbe pushed down, for example, to Bahrain and used in calculating the subsidiary’s Effective Tax Rate (ETR). As a result, a subsidiary that has not paid any local tax may end up with an ETR of 15%, and no DMTT would be due.
- On the right, we highlight that only CFC tax paid by a Constituent Entity can be pushed down. Therefore, if the tax was paid by an individual, it cannot be allocated to the subsidiary.
The second and third slides focus on the differences in how CFC tax is allocated in the Gulf countries that have introduced a DMTT. The UAE expressly prohibits allocation. Bahrain expressly allows it. Qatar follows the Model Rules, meaning it is currently allowed, and Kuwait will address this later in its Executive Regulations.
The fourth slide illustrates the limitation: only CFC tax calculated on passive income (for Pillar Two purposes) can be pushed down, and only up to a cap. You cannot push down so much tax that, for ETR purposes, more than 15% is taken into account on that income. Therefore, if tax at a 10% rate has been paid in Qatar, only 15% – 10% = 5% can be pushed down, not the full 25%. If a 0% rate was applied, then 15% can be pushed down, not 25%.
You can view and download slides by clicking here.
