Ultimate Parent Entity that is a Flow-through Entity

Three kinds of holder

• (a) A holder taxed on the income within 12 months of the Fiscal Year's end — at a nominal rate at or above the Minimum Rate on the full amount, or with combined taxes reasonably expected to reach the Minimum Rate
• (b) A natural person resident in the UPE Jurisdiction holding the published share or less of the profits and assets, in aggregate
• (c) A resident Governmental Entity, International Organisation, Non-profit Organisation or Pension Fund holding the published share or less, in aggregate

Inclusive tests

A nominal rate that equals the Minimum Rate qualifies, and a holding exactly at the published share qualifies. The holding is the holder's aggregate, not each interest.

Points the Commentary settles

• "Within 12 months" is about the holder's taxable period, not payment: it is enough that the income falls in a period of the holder that ends within 12 months of the group's year end
• "The full amount" is not failed by timing differences — accelerated depreciation, say — nor by the holder setting unrelated losses against the income; it is failed by an exemption
• The nominal rate is the statutory rate on that income. For a holder on graduated rates it is the highest rate that would apply if its share were its only taxable income
• A holder that is not resident in the UPE Jurisdiction qualifies if that jurisdiction taxes it at the Minimum Rate or more, through a permanent establishment or a withholding tax; otherwise the group must show what the holder's own jurisdiction does
• The alternative test — combined taxes reasonably expected to reach the Minimum Rate — needs no rate computation, and the group bears the burden of showing the expectation is reasonable
• The small-holder limit is 5% of the profits and 5% of the assets, measured at the end of the Fiscal Year, on interests held directly
• A natural person is tax resident only in a jurisdiction that imposes an individual income tax, so the small-holder route is not available where there is none
• A Governmental Entity, International Organisation, Non-profit Organisation or Pension Fund is "resident" where it is created and managed. Investment Entities are not within that route

Covered Taxes follow

The UPE's Covered Taxes are reduced proportionally with the income.

Losses, and branches

A GloBE Loss of the transparent parent is reduced in the same way, by the share that flows through to holders who can use it in their own tax computation — otherwise the loss would shelter other group entities in the jurisdiction as well as its holders. Any part the holders cannot use stays with the parent, which may carry it forward through a GloBE Loss Election limited to itself. The same treatment extends to a Permanent Establishment through which the parent, or a transparent entity it holds directly or through a chain of transparent entities, carries on business; the test is applied to the branch's income separately.

Beyond the reduction

A Flow-through Entity that is the UPE is located where it was created, and the Transitional CbCR Safe Harbour is unavailable in its jurisdiction unless all its Ownership Interests are held by Qualified Persons.