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

Under the Pillar Two GloBE rules, a group's jurisdictional computation for Country Y shows GloBE income of Rs 400 crore and adjusted covered taxes of Rs 40 crore. Ignoring any substance-based income exclusion and top-up tax adjustments, what is the top-up tax percentage and the top-up tax for Country Y, assuming a 15 percent minimum rate?

The effective tax rate is 10 percent (40 divided by 400), so the top-up percentage is 5 percent and the top-up tax is Rs 20 crore. This equals the required 15 percent tax of Rs 60 crore less the Rs 40 crore already paid.

  1. ATop-up percentage 5 percent; top-up tax Rs 20 croreCorrect
  2. BTop-up percentage 10 percent; top-up tax Rs 40 crore
  3. CTop-up percentage 15 percent; top-up tax Rs 60 crore
  4. DTop-up percentage 5 percent; top-up tax Rs 2 crore

Explanation

Effective tax rate = 40/400 = 10 percent. Top-up percentage = 15 − 10 = 5 percent. Top-up tax = 5 percent × 400 = Rs 20 crore. Check: required tax at 15 percent is Rs 60 crore less Rs 40 crore paid equals Rs 20 crore. Rs 40 crore wrongly uses the ETR as the top-up percentage, and Rs 60 crore ignores taxes already paid.

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