Part C and its place in Module Three
The June 2026 second edition contains 38 pages, continuing Module Three at slides 137–172. Parts A and B address current/deferred-tax adjustments, recapture and other adjustments; Part C deals with allocating covered taxes. It distinguishes general GloBE allocation from Singapore DTT modifications. Qualifying current and deferred tax expenses are both affected where expressly stated; accounting location alone does not decide the final entity allocation.
Flow-through entity proportional reduction
Where a flow-through entity’s financial accounting net income or loss (FANIL) is excluded or allocated to another constituent entity (CE), reduce that flow-through entity’s qualifying current and deferred tax expenses in the same proportion. The First Schedule rules align removed or reassigned income with its tax expense, rather than leaving all tax at the original flow-through entity.
PE and main-entity allocation
A main entity excludes qualifying current and deferred tax expenses relating to its permanent establishment (PE); those excluded amounts are treated as the PE’s expenses for the financial year. For Singapore DTT, however, regulation 49(1)(a) prevents the overseas main entity’s expenses relating to the Singapore PE from being allocated to that PE. The same economic structure therefore has different treatment for the stated DTT purpose.
PE income shifted back and loss-related assets
Where regulation 27(2) allocates PE GloBE income or loss Amount A to its main entity, the associated qualifying current tax expense follows it, capped at Amount A multiplied by the main-entity jurisdiction’s highest corporate rate on ordinary income; the diagram assumes 20%. Where regulation 27(1) allocates a PE loss to the main entity, disregard the PE-jurisdiction deferred-tax asset relating to that allocated loss when calculating the PE’s adjusted covered taxes.
Ordinary CFC taxes and DTT exclusion
If CE1 is currently taxed on some or all CE2 income under CE1’s jurisdictional controlled-foreign-company (CFC) regime, allocate CE1’s corresponding qualifying current and deferred tax expenses to CE2, subject to regulation 44(6)’s passive-income cap. If CE2 is a Singapore CFC, regulation 49(1)(a) disallows that CFC tax allocation in its DTT adjusted covered taxes.
What makes a blended CFC regime
A blended regime aggregates income and losses of all an entity’s CFCs for its liability, does not include the owner-jurisdiction income of that owner or any CE other than use of losses, and operates where the CFC tax rate is below 15%. The allocation formula taught applies to financial years starting on or before 31 December 2025 and ending on or before 30 June 2027. Allocate each determined share to a CFC that is a group CE; exclude the share attributable to a non-CE CFC from the owner’s adjusted covered taxes.
Blended allocation formula and zero keys
The CFC-specific amount is its allocation key divided by the sum of keys for all the owner’s CFCs, multiplied by the owner’s qualifying current or deferred tax expense under the blended regime. A key equals attributable CFC income multiplied by applicable blended-regime rate minus specified CFC ETR. The key is zero where that ETR is at least 15% or at least the applicable blended-regime rate. The resulting allocation remains subject to the passive-income cap.
Seven entity classes for the key
The source distinguishes ordinary CEs other than special entities; stateless entities; minority-owned CEs excluding investment/insurance-investment entities; minority-owned subgroup members with the same exclusion; investment and insurance-investment entities; standalone JVs; and JV-group entities. Specified ETR is selected by the relevant class and scenario, so sharing a country alone does not always establish one combined rate.
Scenarios 1–2: GloBE entities and a non-GloBE CFC
Where CFC1 and CFC2 are same-class GloBE entities in one jurisdiction, use their combined ETR for the key. Where CFC1 is not a GloBE entity but GloBE entities exist locally, use the ETR of the GloBE entity class with the highest total income attributable to CE1 under the blended regime. In both cases, disregard blended-CFC taxes in that ETR and include QDMTT if the blended regime grants a foreign-tax credit for it.
Scenario 3: no local GloBE entities
If the CFC is not a GloBE entity and there are no GloBE entities in its jurisdiction, calculate the ETR using total income and taxes in the financial statements of all local entities in which CE1 holds an ownership interest and that are taxed under the blended regime. The example includes non-GloBE CFC1 and CFC2; it does not invent a GloBE adjusted-tax computation for nonexistent local GloBE members.
Scenario 4: transitional CbCR safe harbour
When transitional CbCR safe harbour applies to the jurisdictional CEs, use simplified ETR: total simplified income-tax expense of relevant local GloBE entities divided by their total pretax profit or loss as reported in the group’s qualifying country-by-country report. CFC1 can be a GloBE or non-GloBE entity in the diagram, but the rate is determined by the specified relevant GloBE population.
Scenarios 5–6: QDMTT safe harbour and no ETR requirement
Under QDMTT safe harbour, the specified rate equals the adjusted covered taxes used for domestic QDMTT ETR plus QDMTT payable that is includible in those taxes, divided by relevant GloBE income/loss used for QDMTT. Where the relevant entities need not determine ETR, use total simplified income-tax expense divided by total pretax profit/loss in the group’s qualified financial statements. This last denominator comes from qualified statements, unlike scenario 4’s CbC report.
Tax on distributions
Where CE1 directly owns CE2 and receives a distribution, allocate associated qualifying current and deferred tax expense to CE2. Distributions include deemed distributions of retained earnings or capital. For a Singapore CE2’s DTT, regulation 49(1)(c) prohibits allocating CE1’s distribution tax to CE2. The direct-ownership condition should not be replaced with a general assumption that any ultimate shareholder tax follows the payer.
Hybrid-entity income and Singapore-tax exception
Where CE1 owns X and X is hybrid for income attributable to that interest, allocate CE1’s corresponding current and deferred tax to X, including specified income allocated to X from a flow-through entity. Apply the passive-income cap. For Singapore X’s DTT, regulation 49(1)(d) excludes this allocation except tax recorded in CE1’s accounts that arises under Singapore’s Income Tax Act on that income. The exception does not admit all overseas shareholder tax.
Reverse hybrids: direct and indirect owners
For a reverse hybrid entity (RHE) Z, allocate the reference entity CE1’s tax relating to Z income attributable to CE1 to Z. If CE2 indirectly owns Z through reference entity CE1 and is not itself a reference entity, corresponding tax in either CE1 or CE2 is allocated to Z. Both ownership diagrams remain subject to regulation 44(6)’s cap.
RHE DTT modifications and section 29(b)
Where Z is in Singapore, regulation 49(1)(e) excludes CE1/CE2 tax allocation for DTT, except amounts recorded in their financial accounts and arising under Singapore’s Income Tax Act on that income. Regulation 49(1)(f) applies the equivalent restriction where Z is a section 29(b) entity. The module shows both cases separately, rather than treating reference-entity location alone as sufficient for domestic inclusion.
Passive-income cap and retained excess
For passive income under ordinary or blended CFC, hybrid or reverse-hybrid allocations, the cap is (15% minus D) multiplied by E. D is recipient X2’s relevant ETR calculated without the passive-income tax that would otherwise be allocated; E is passive income. Tax not allocated because of the cap remains qualifying current or deferred tax expense of X1. The rule limits shifting passive-income tax; it does not discard the unallocated amount entirely.
Connected JV allocation
Where Z2 is a standalone JV or JV-group entity connected to the MNE group, allocate Z1 tax that regulation 44 would have allocated to Z2 had Z2 been a group CE. This extends the relevant allocation treatment to the connected JV population without treating every commercial joint venture as a CE. The closing slide describes the material as general, date-specific guidance rather than an exhaustive treatment of all facts.
Official source
This article independently explains the substantive contents of the official PDF, including the relevant conditions, procedures and annexes. The linked document remains the authoritative source for its original wording, and later changes should be checked separately.
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