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
General logic of the algorithm
Data structure
Structure overview
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" :
| Role | Label | Definition | Typing | Multiplicity behavior | Mandatory |
|---|---|---|---|---|---|
| Matching | |||||
| Matching | |||||
| Matching |
Rules
The following tables presents the data points allowed as "Rules" :
| Role | Label | Definition | Typing | Multiplicity behavior | Mandatory |
|---|---|---|---|---|---|
| Matching | |||||
| Matching |
Other
Output
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.
- 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.
- Input data leading to the application of the recalculation are present,
Impact on rules
Computational steps
Macro-step 1 - Scope and Perimeter
Step 1.1. - Generation of the Ownership Interests and Control matrices
Step 1.2. - Sanity checks on Ownership interests
Step 1.3. - Indirect ownership computation
Step 1.4. - Controlling interest matrix computation
Step 1.5. - Definition of the MNE Group
Case 1 : Using Controlling interests and consolidation method
UPE identification : entity with
- consolidation "full"
- no parent entity with
- controlling interest in it
- and consolidation method
- full/proportional/equity
- or not consolidated for reasons in article 1.2.2.b) "size or materiality grounds"/, or "is held for sale"
Entity is part of the MNE Group if :
- UPE has Controlling interest in the entity
- and consolidation method
- full/proportional/equity
- or not consolidated for reasons in article 1.2.2.b) "size or materiality grounds"/, or "is held for sale"