Tax accounting algorithm

Introduction

Context

Welcome to the OpenSource Tax accounting Algorithm with Tax Impact Computation wiki page! This platform serves as a comprehensive resource for understanding and implementing a pioneering open-source algorithm specifically designed to compute and prepare the tax proof and the deffered tax report.

Objectives

The objective of this algorithm is to perform tax accounting computations on a dataset from a company, produce the tax proof and/or the deferred tax report. This algorithm allows to run the computation on an arbitrary data structure through the use of labelling systems and gives back the result at the requested level of segmentation.

Feature Overview

The algorithm will present the following features:

• Computation of the tax impact of the temporary differences, per flow;
• Inclusion of Tax losses and tax credits in the computation, with detail;
• Management of Core and Non-core analysis;
• Variable number of Reconciliation steps with configurable origin of the reconciliation;
• Central management of tax rates;
• Availability of a distinct rate basked;
• Compatibility with the Pillar 2 computation;
• Generation of the Tax proof component;
• Generation of the Deferred Tax Report.

Development Program

The Tax accounting algorithl presented in this page is an ongoing work and its documentation on this wiki is also a work in progress. It is by no means complete and definitive, and changes will occur in the upcoming weeks and months.

Both GitHub and MediaWiki are amazing tools to manage collaborative work and track the progress and modifications that happen with time.

The detailed to-do list is presented Tax accounting algorithm development program.

Data structure

Algonomia API Framework

The Tax Accounting 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 Tax Accounting 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	DTX Entity segmentation	Allows to define the segmentation of the data input that corresponds to the base aggregation level for the entity involved in the Tax accounting computation	Couple (String; Integer)	Several Values can be defined as "DTX Entity segmentation", but the Integer has to be unique among the set	Yes
Data segmentation	Type of difference	Represents the assets employed by the entity, which are considered in the transfer pricing computation	Couple (Decimal;ISO 3 Currency Code)	If multiple defined, are aggregated for computation	No, if absent and required by computation, assumed to be 0
Data segmentation	Primary account	Refers to the total capital (both equity and debt) used by the entity in its operations	Couple (Decimal;ISO 3 Currency Code)	If multiple defined, are aggregated for computation	No, if absent and required by computation, assumed to be 0
Data segmentation	Sub-account	Denotes the total revenue generated by the entity from sales of goods or services	Couple (Decimal;ISO 3 Currency Code)	If multiple defined, are aggregated for computation	No, if absent and required by computation, assumed to be 0
Data segmentation	Nature	Stands for Out of Group Sales, representing the total revenue generated by the entity from sales of goods or services to parties that are not part of the same group or entity, hence outside of the related or affiliated entities	Couple (Decimal;ISO 3 Currency Code)	If multiple defined, are aggregated for computation	No, if absent and required by computation, assumed to be 0
Data segmentation	Step	Stands for Cost of Goods Sold, indicating the direct costs attributable to the production of the goods sold by the entity	Couple (Decimal;ISO 3 Currency Code)	If multiple defined, are aggregated for computation	No, if absent and required by computation, assumed to be 0
Data segmentation	Sign	Represents the amounts paid by the entity for the use of intellectual property or other assets owned by related parties	Couple (Decimal;ISO 3 Currency Code)	If multiple defined, are aggregated for computation	No, if absent and required by computation, assumed to be 0
Financials	ATP Management fee received	Indicates the fees received by the entity for providing management services to related parties	Couple (Decimal;ISO 3 Currency Code)	If multiple defined, are aggregated for computation	No, if absent and required by computation, assumed to be 0
Financials	ATP Operating Expenses	Denotes the daily operational costs of an entity, distinct from other expenses such as COGS and management fees	Couple (Decimal;ISO 3 Currency Code)	If multiple defined, are aggregated for computation	No, if absent and required by computation, assumed to be 0
Financials	ATP Profit Indicator	A measure or indicator used to assess the profitability of the entity in the context of transfer pricing	Couple (Decimal;ISO 3 Currency Code)	If multiple defined, are aggregated for computation	No, if absent and required by computation, assumed to be 0
Taxation	ATP PBT	Refers to Profit Before Tax, indicating the entity’s profit before the deduction of taxes	Couple (Decimal;ISO 3 Currency Code)	If multiple defined, are aggregated for computation	No, if absent and required by computation, assumed to be 0
Taxation	ATP Tax losses carryforward N	Represents the tax losses incurred in the current year (N), where "N" denotes the present or most recent tax year. These losses can be carried forward to offset future taxable profits, subject to applicable laws and regulations	Couple (Decimal;ISO 3 Currency Code)	If multiple defined, are aggregated for computation	No, if absent and required by computation, assumed to be 0
Taxation	ATP Tax losses carryforward N-1	Represents the tax losses from the previous year (N-1), where "N-1" refers to the year immediately preceding the current year (N). These losses can be carried forward to offset profits in subsequent years, according to the relevant tax laws.	Couple (Decimal;ISO 3 Currency Code)	If multiple defined, are aggregated for computation	No, if absent and required by computation, assumed to be 0
Taxation	ATP Tax expenses	Indicates the total tax expenses incurred by the entity	Couple (Decimal;ISO 3 Currency Code)	If multiple defined, are aggregated for computation	No, if absent and required by computation, assumed to be 0
Transfer Pricing	ATP Firm Creation Date	Refers to the date on which the entity was established or created	Couple (Decimal;ISO 3 Currency Code)	Not allowed	No
Transfer Pricing	ATP Base for Royalty	Represents the basis or calculation used for determining the royalty payments made or received by the entity	Couple (Decimal;ISO 3 Currency Code)	If multiple defined, are aggregated for computation	No, if absent and required by computation, assumed to be 0
Transfer Pricing	ATP Cost Base for Management fee	Indicates the cost structure or basis used to calculate the management fees charged or received by the entity	Couple (Decimal;ISO 3 Currency Code)	If multiple defined, are aggregated for computation	No, if absent and required by computation, related TPA =0
Transfer Pricing	ATP Consumption Base for Management fee	Denotes the consumption or usage basis used for determining management fees charged to the entity	Decimal or Couple (Decimal;ISO 3 Currency Code)	If multiple defined, are aggregated for computation	No, if absent and required by computation, related TPA =0

Rules

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

Input Rules data points

Role	Label	Definition	Typing	Multiplicity behavior	Mandatory
Matching	DTX Rule segmentation	Allows to define the segmentation level of the Rule component to be retrieved	Couple (String; Integer)	Several Values can be defined as "ATP Rule segmentation", but the Integer has to be unique among the set	Yes
National taxation	DTX Consolidation Tax Rate	Input of the group's consolidation tax rate	percentage	Only one value is acceptable for a given segment of the analysis, see Rule mapping	Yes
National taxation	DTX Deferred Standard CIT rate - Opening	Input of the applicable national tax rate affecting the entity's deferred tax computation, for the Opening flows	percentage	Only one value is acceptable for a given segment of the analysis, see Rule mapping	Yes
National taxation	DTX Deferred Standard CIT rate - Current Year	Input of the applicable national tax rate affecting the entity's deferred tax computation, for the Current year flows	percentage	Only one value is acceptable for a given segment of the analysis, see Rule mapping	Yes
National taxation	DTX Deferred Standard CIT rate - Closing	Input of the applicable national tax rate affecting the entity's deferred tax computation, for the Closing year flows	percentage	Only one value is acceptable for a given segment of the analysis, see Rule mapping	Yes
National taxation	DTX Current Standard CIT rate - Opening	Input of the applicable national tax rate affecting the entity's local tax computation, for the Opening flows	percentage	Only one value is acceptable for a given segment of the analysis, see Rule mapping	Yes
National taxation	DTX Current Standard CIT rate - Current Year	Input of the applicable national tax rate affecting the entity's local tax computation, for the Current year flows	percentage	Only one value is acceptable for a given segment of the analysis, see Rule mapping	Yes
National taxation	DTX Current Standard CIT rate - Closing	Input of the applicable national tax rate affecting the entity's local tax computation, for the Closing year flows	percentage	Only one value is acceptable for a given segment of the analysis, see Rule mapping	Yes
National taxation	DTX Current Separate CIT rate - Opening	Input of the applicable separate tax rate affecting the entity's local tax computation, for the Opening flows	percentage	Only one value is acceptable for a given segment of the analysis, see Rule mapping	Yes
National taxation	DTX Current Separate CIT rate - Current Year	Input of the applicable separate tax rate affecting the entity's local tax computation, for the Current year flows	percentage	Only one value is acceptable for a given segment of the analysis, see Rule mapping	Yes
National taxation	DTX Current Separate CIT rate - Closing	Input of the applicable separate tax rate affecting the entity's local tax computation, for the Closing year flows	percentage	Only one value is acceptable for a given segment of the analysis, see Rule mapping	Yes

Computational steps

Data received by the algorithm are processed using the standardized Rule matching methodology. At this stage every single entry contains both the financial data and the rules to be applied.