Pillar 2 Algorithm

Introduction

Context

Welcome to the OpenSource Pillar 2 Algorithm wiki page! This platform serves as a comprehensive resource for understanding and implementing a pioneering open-source algorithm specifically designed to perform Pillar 2 computations and prepare the GloBE Information Return.

BEPS Pillar 2 represents a significant step in global tax reform, introducing the concept of a Global Minimum Tax to prevent aggressive tax planning and profit shifting by multinational enterprises. Given the intricate nature of international taxation, coupled with the unique structures of individual corporations, computing the tax liabilities under the Global Minimum Tax framework is inherently complex. The scope of the regulation and the various election options available to entities further complicate the computations, requiring in-depth analysis and consideration.

Objectives

Recognizing this complexity, Algonomia has developed a sophisticated algorithm to address these challenges. By opting to release it as open-source, Algonomia aims to foster collaboration among tax specialists, economists, and administrations. This approach not only ensures the refinement and enhancement of the algorithm but also promotes transparency, demonstrating a commitment to a fair and unified international tax landscape.

Feature Overview

The algorithm will present the following features:

• Scope and Groupe perimeter analysis, to determine the different sub-groups in each jurisdictions for the safe-harbour rules, elections and ETR computations,
• Safe Harbour computation and analysis, to identify the sub-perimeters requiring less detailed data collection and resulting in simpler computations,
• GloBE Income and Adjusted covered tax computation
• Election treatments
• Post-filing and additional Top-Up Tax computation
• Effective Tax Rate and Top-Up Tax computation for LTCE's
• Charging provisions and Paying entity identifications (UPE, POPEs, IPEs)
• UTPR computation

Data structure

Algonomia API Framework

The Transfer Pricing Algorithm uses Algonomia API Framework to receive input data and send output data for the computations. In the following sections, it is assumed that data has been transferred to the Transfer Pricing Algorithm using this framework.

Input

The input data follows the usual division required by the Algonomia API Framework : Data, Rules, Other.

Data

The following tables presents the data points allowed as "Data" :

Input Data Points

Role	Label	Definition	Typing	Multiplicity behavior	Mandatory
Matching
Matching
Matching

Rules

The following tables presents the data points allowed as "Rules" :

Input Rules data points

Role	Label	Definition	Typing	Multiplicity behavior	Mandatory
Matching
Matching

Serie of files

A series of structured files corresponds to the selection of a sequence of structured files whose data and rules can be processed in a coordinated manner in the dashboard or the calculations of the algorithm.

The selected structured files must form a sequence where their temporal referencing perimeters follow each other in a disjointed and adjacent manner (e.g., a succession of months, quarters, years).

Impact of series on Post-filing computations

The Pillar 2 computations allows and sometimes requires to perform the recalculation of the Top-Up Tax liability of the previous fiscal years to generate the Additional Top-Up Tax. This will only be possible under the following conditions.

1. Structured files exists for the fiscal years prior to the one under computation. They must be present in an interrupted sequence of 5 fiscal years starting with N-5.
2. Input data leading to the application of the recalculation are present,

Computational steps

Macro-step 1 - Scope and Perimeter

Step 1.1. - Definition of the Group perimeter

Case 1 : UPE is not identified

Case 2 : UPE is identified

Step 1.2. - Coherence check of consolidation methods

Step 1.3. - Generation of the Ownership Interests and Controlling Interest matrices

Step 1.4. - Sanity checks on Ownership interests and Indirect ownership computation

Step 1.5. - Alternate Controlling interest matrices and sanity checks

Step 1.6. - Excluded entity identification

Step 1.7. - Joint-Venture identifications

Step 1.8. - MOCE and MOMNE identification

Step 1.9. - Specific CE treatments

Macro-step 2 - Safe Harbour

Step 2.1. - Definition of Safe harbour perimeters

Step 2.2. - Application of Safe harbour elections

Step 2.3. -

Macro-step 3 - General Financial data treatments

Step 3.1. - Data reallocation for specific CEs

Step 3.2. - Post-filing recalculations

Macro-step 5 - ETR and Top-Up Tax computations

Step 5.1. - Construction of Jurisdiction/Sub-group indicators

Step 5.2. - Computation of Jurisdiction/Sub-group Top-Up Tax

Step 5.3. - Allocation of Top-Up Tax among LTCEs

Macro-step 6 - Charging Mechanisms

Step 6.1. - Construction of the "Is in IIR" Matrix

Step 6.2. - Identification of potential IPE/POPEs

Step 6.3. - Identification of IPEs and POPEs

Step 6.4. - Construction of Allocable share matrix

Step 6.5. - Exclusion of IIR and Offset mechanism

Step 6.6. - Final charging mechanism of LTCE's TUT to paying entities

Macro-step 7 - UTPR computation

Step 7.1. - Computation of Total UTPR amount

Step 7.2. - Computation of coefficients per Jurisdictions

Step 7.3. - Final UTPR computation per jurisdiction