Step-by-step computation for Macro-step 7

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Purpose

The purpose of the UTPR computation is to identify the amount of Top-Up Tax not taken into account by the Income Inclusion Rule, and reallocate it across the UTPR Jurisdiction according to the allocation key.

General Logic

In order to perform the UTPR computation, the total amount of Top-Up Tax is compared with the amount of Top-Up Tax effectively allocated for payment through the IIR, and the difference is used as a base before reallocation using the formulary apportionment key across all UTPR Jurisdictions.

Data Input

The Data input for Macro-step 7 consists in :

  • The list of Top-Up Tax amounts from the Macro-step 5 ;
  • The list of allocated Top-Up Tax amounts according to the IIR;
  • The input data for the formulary apportionment;
  • The Financial data for UTPR computations;
  • Article 9.3. Characteristics;

The detailed matrix is available in the relevant section of the Pillar 2 Data Structure.

Data Output

The Data output for Macro-step consists in :

  • The UTPR amounts affected to each Jurisdictions ;
  • The GloBE Information Return output data

The detailed matrix is available in the relevant section of the Pillar 2 Data Structure.

Detailed Step by step approach

Step 7.1. - Computation of the UTPR Top-Up Tax amount

Purpose

The purpose of this step is to compute the UTPR Top-up Tax Amount according to the Article 2.5. of the Model Legislation.

General Logic

This Step 7.1. will consist in the aggregation of the Top-UP Tax Amounts of all LTCEs and then in the succesive reduction of this amount by the total LTCE Top-Up Tax if all ownership interests of the UPE are covered by an IIR Rule (article 2.5.2.), or only by the total amount amounts actually brought into charge by the IIR along the shareholding structure (article 2.5.3.).

Data Input

The Data input for Step 7.1. consists in :

  • The Allocable Share With Offset Matrix
  • The Allocable Share Matrix
  • The Indirect Ownership Interest Matrix
  • The Article 9.3. Characteristics;
  • The Macro-Step 2 results on Safe harbor and the nominal tax rate of the UPEs jurisdiction

The detailed matrix is available in the relevant section of the Pillar 2 Data Structure.

Data Output

The Data output for Step 7.1. consists in :

  • The UTPR Top-Up Tax Amount after the reductions

The detailed matrix is available in the relevant section of the Pillar 2 Data Structure.

Detailed computations

The list of Micro-Step is a follows :

  • Micro-Step 7.1.1. Total UTPR Top-Up Tax Amount
  • Micro-Step 7.1.2. Complete reduction to 0 for LTCEs for which UPEs ownership interests are fully covered by IIR
  • Micro-Step 7.1.3. Final reduction by the Top-Up Tax covered by the IIR
Micro-Step 7.1.1. Total UTPR Top-Up Tax Amount

This step is pretty simple as it consists in the aggregation of all Top-Up Tax Amounts generated by the LTCEs, as required by article 2.5.1..

As the treatments of the following steps are counted as reductions of this total we will define them as such.

No value is generated at this stage for a group corresponding to the article 9.3. criterion.

Micro-Step 7.1.2. Application of the Transitional UTPR Safe harbor

This step allows to exclude the UPEs Jurisdiction from the UTPR computation if the nominal tax rate of the jurisdiction is higher than 20% during the transition period.

Micro-Step 7.1.3. Complete reduction to 0 for LTCEs for which UPEs ownership interests are fully covered by IIR

This step requires to reduce the contribution to the Total UTPR Top-Up Tax Amount of a given LTCE to 0 if the UPEs direct or indirect ownership interests are held directly or indirectly by Parent Entities having to apply an IIR.

To test this we propose to compare the Allocable Share of the UPE in a given LTCE with the sum of Allocable Share With Offset of this LTCE, for all its parents, that is attributable to the UPE.

For a LTCE j we test if

AllocableShare(UPE, j) = AllocableShareWithOffset(UPE, j) + Sumk parent of j<>UPE (IndirectOwnershipInterests(UPE,k) x AllocableShareWithOffset(k, j))

In this case we can add a reduction to the Total UTPR Amount for the LTCE j equal to the Top-Up Tax it was allocated.

Micro-Step 7.1.4. Final reduction by the Top-Up Tax covered by the IIR

This step is more restrictive as it allows for a smaller reduction to the UTPR Top-Up Tax that only corresponds to the Top-Up Tax Amounts effectively brought to charge.

Thus for a LTCE j for which no reduction has been recorded at step 7.1.2. the following reduction is computed: Sumk parent of j (AllocableShareWithOffset(k, j))

Step 7.2. - UTPR computation per jurisdiction

Purpose

The purpose of this step is to allocate the Total UTPR Top-Up Tax Amount computed at the previous step between the jurisdictions that have a qualified UTPR in place based on a formulary apportionment key using the number of employees and the tangible assets in these jurisdiction.

General Logic

This Step 7.2. will consist in the allocation the Total UTPR Top-Up Tax Amount based on a formulary apportionment key using the number of employees and the net book value of tangible assets in these jurisdiction .

Data Input

The Data input for Step 1.2. consists in :

  • The Remaining Total UTPR Top-Up Tax Amount after Step 7.1.
  • The UTPR Top-up Tax carryforward and Additional cash tax expense incurred by CEs in UTPR jurisdiction
  • The Number of employees (preferably at CE level)
  • The Tangible Assets (preferably at CE level)
  • The list of UTPR jurisdictions

The detailed matrix is available in the relevant section of the Pillar 2 Data Structure.

Data Output

The Data output for Step 7.2. consists in :

  • UTPR Top-up tax percentage and amount allocated to each jurisdiction
  • The list of UTPR Top-up tax left to be carried forward in each jurisdiction

The detailed matrix is available in the relevant section of the Pillar 2 Data Structure.

Detailed computations

The list of Micro-Step is a follows :

  • Micro-Step 7.2.1. Definition of UTPR jurisdiction coefficients
  • Micro-Step 7.2.2. Computation of the UTPR per jurisdiction
  • Micro-Step 7.2.3. Computation of the UTPR Top-up tax left to be carried forward
Micro-Step 7.2.1. Definition of UTPR jurisdiction coefficients

Let's consider that for all jurisdictions of the concerned entities we have:

  • A boolean indicating the existence of a UTPR rule in jurisdiction j: IS_UTPRj.
  • The number of employees in jurisdiction j, excluding Invesment entities and remaining in Flow-through: FTEj.
  • The total amount of tangible assets in jurisdiction j, excluding Invesment entities and remaining in Flow-through: TAj.
  • A boolean indicating whether the UTPR for the past year was actually levied. For a jurisdiction j, let UTPRPYj be a variable:
    • Equal to 1 if UTPR Top-up Tax carryforward(j)=0 and 0 otherwise.
    • Forced to 1 for all j, if the initial sum of UTPRPYj across all j equals 0.

Then for a given jurisdiction j,

coefUTPRj = 50% x UTPRPYj x IS_UTPRj x FTEj / Sumall k (UTPRPYk x IS_UTPRk x FTEk) + 50% x UTPRPYj x IS_UTPRj x TAj / Sumall k (UTPRPYk x IS_UTPRk x TAk).

Micro-Step 7.2.2. Computation of the UTPR per jurisdiction

Thus, for Jurisdiction j, Share of UTPR(j) = coefUTPRj x Remaining Total UTPR Top-Up Tax Amount.

Micro-Step 7.2.3. Computation of the UTPR Top-up tax left to be carried forward

And finally :

UTPR Top-up tax left to be carried forward (j) = Share of UTPR(j) - Additional cash tax expense incurred by CEs in UTPR jurisdiction j

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