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CA Final · Direct Tax Laws & International Taxation · Latest Developments in International Taxation

Case: Sundaram Textiles Ltd, an Indian company, has a subsidiary in a country that has implemented the OECD Pillar Two global minimum tax of 15%. The subsidiary's jurisdictional effective tax rate is computed at 9%, and its excess profit over the substance-based income exclusion is Rs 50 crore. Under the GloBE rules, what is the top-up tax for that jurisdiction before any qualified domestic minimum top-up tax?

The top-up tax is Rs 3 crore. Under Pillar Two the top-up percentage is the 15% minimum rate minus the 9% jurisdictional effective rate, giving 6%, which is applied to the Rs 50 crore excess profit after the substance-based income exclusion.

  1. ARs 3 crore
  2. BRs 4.5 croreCorrect
  3. CRs 7.5 crore
  4. DRs 12 crore

Explanation

Top-up tax percentage = 15% - 9% = 6%. Applied to excess profit of Rs 50 crore, top-up = 0.06 x 50 = Rs 3 crore. Rs 4.5 crore is wrong. Check: 3 / 50 = 6%. Therefore the right figure is Rs 3 crore, which is option 0.

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