Purpose
Convert jurisdiction-level financial and tax data into an estimated Pillar Two top-up tax exposure — calculating the GloBE effective tax rate per jurisdiction, netting the substance-based income exclusion, and identifying exactly which jurisdictions push the group below the 15% minimum and how much top-up tax results. Replaces error-prone spreadsheet modeling with a repeatable, rule-aligned calculation the tax function can run each time entity data updates.
When to Use
Invoke this skill when the user asks to:
- Estimate Pillar Two / GloBE top-up tax exposure across a multinational group
- Determine which jurisdictions fall below the 15% global minimum tax rate
- Calculate the substance-based income exclusion (SBIE) offset for a jurisdiction
- Model the tax impact of Pillar Two before filing or board reporting
- Assess whether a low-tax jurisdiction triggers Income Inclusion Rule (IIR) or UTPR liability
- Stress-test restructuring or investment scenarios against the global minimum tax
Inputs Required
Before starting, collect:
- Jurisdictions in scope: List of jurisdictions where constituent entities operate
- GloBE income per jurisdiction: Net accounting income adjusted for GloBE (financial accounting profit before tax as a starting point if adjustments unknown)
- Covered taxes per jurisdiction: Current + deferred tax expense attributable to each jurisdiction
- Payroll costs per jurisdiction: Eligible employee compensation for the SBIE carve-out
- Tangible assets per jurisdiction: Net book value of eligible tangible assets for the SBIE carve-out
- Ownership / group structure: Which parent(s) hold the low-tax entities — to determine whether IIR, UTPR, or a QDMTT applies
- Fiscal year: The reporting period — determines the applicable SBIE transition rate
If GloBE adjustments are unavailable, use financial-accounting profit before tax as the income proxy and covered taxes as reported income tax expense, and flag these as unadjusted estimates. If ownership structure is not provided, assume top-up tax is collected via the IIR at the ultimate parent.
Instructions
Step 1: Confirm Scope and Assumptions
- Confirm the group meets the €750M consolidated revenue threshold; if unknown, note that Pillar Two applies only at or above this threshold and proceed as if in scope.
- State the fiscal year and the corresponding SBIE transition percentages (see Step 4).
- List every jurisdiction to be calculated and confirm each has income, covered taxes, payroll, and tangible asset figures. Flag any jurisdiction with missing data.
Step 2: Calculate GloBE ETR per Jurisdiction
For each jurisdiction:
- GloBE ETR = Adjusted Covered Taxes ÷ Net GloBE Income
- Aggregate all constituent entities within the same jurisdiction (jurisdictional blending) before computing the ratio — do not calculate entity-by-entity.
- Express the ETR as a percentage to one decimal place.
- Where net GloBE income is zero or negative, note that no top-up tax arises for that period and set aside for the loss-carryforward note in Step 8.
Step 3: Flag Low-Tax Jurisdictions
- Compare each jurisdictional GloBE ETR to the 15% minimum rate.
- Mark each jurisdiction: Above 15% (no top-up) or Below 15% (at risk).
- For each at-risk jurisdiction, compute the Top-up Tax Percentage = 15% − GloBE ETR.
Step 4: Calculate the Substance-Based Income Exclusion (SBIE)
The SBIE reduces the income subject to top-up tax by a percentage of payroll and tangible assets. For each at-risk jurisdiction:
- SBIE = (Payroll Carve-out % × Eligible Payroll) + (Tangible Asset Carve-out % × Net Tangible Assets)
- Apply the transition-year rates for the fiscal year in scope:
- Steady state (2033+): 5% payroll / 5% tangible assets
- Transition schedule declines annually from higher rates (e.g., ~9.8% payroll / ~7.8% assets in early years) toward 5% — apply the rate matching the stated fiscal year and cite the rate used.
- Excess Profit = Net GloBE Income − SBIE (floor at zero; if SBIE ≥ income, top-up tax is zero for that jurisdiction).
Step 5: Compute Top-up Tax per Jurisdiction
For each at-risk jurisdiction:
- Top-up Tax = Top-up Tax Percentage × Excess Profit
- Subtract any Qualified Domestic Minimum Top-up Tax (QDMTT) already imposed locally — if a QDMTT applies in that jurisdiction, the residual top-up tax collected under IIR/UTPR is typically reduced to zero. Note QDMTT status per jurisdiction.
Step 6: Assign the Collection Mechanism
For each jurisdiction with residual top-up tax, determine who collects it based on the group structure:
- QDMTT: Collected locally in the low-tax jurisdiction (takes priority).
- IIR: Collected at the ultimate/intermediate parent under the Income Inclusion Rule.
- UTPR: Backstop where no IIR applies — allocated across UTPR jurisdictions. Label each exposure with its collecting mechanism and paying entity.
Step 7: Build the Ranked Exposure Summary
- Rank at-risk jurisdictions by absolute top-up tax, largest first.
- Present a table with: Jurisdiction | GloBE Income | Covered Taxes | GloBE ETR | SBIE | Excess Profit | Top-up % | Top-up Tax | Collection Mechanism.
- Total the group-level top-up tax exposure.
Step 8: Mitigation Levers and Sensitivities
Provide 4–6 concrete levers relevant to the jurisdictions that surfaced, such as:
- Adopting or crediting a local QDMTT to keep top-up revenue in-country.
- Increasing eligible substance (payroll/tangible assets) to grow the SBIE carve-out.
- Reviewing deferred tax positions that affect adjusted covered taxes.
- Applying the transitional CbCR safe harbours where thresholds are met.
- Note the impact of the declining SBIE transition rates on future-year exposure. Flag any calculation driven by unadjusted proxy data as an estimate requiring GloBE-adjusted figures before filing.
Output Format
- Structure: Assumptions block → per-jurisdiction ETR calculations → ranked exposure table → collection mechanism assignments → mitigation levers
- Length: 800–1,200 words plus the exposure table
- Format: Structured document with one summary table and short calculation walk-throughs per at-risk jurisdiction
- Sections: Scope & Assumptions → GloBE ETR by Jurisdiction → Low-Tax Flags → SBIE Calculations → Top-up Tax by Jurisdiction → Collection Mechanism → Ranked Exposure Summary (table) → Mitigation Levers & Sensitivities
- Tone: Technical tax advisory — precise, figures-first, conservative on assumptions, explicit about estimate vs. filing-grade calculation
Quality Checklist
Before delivering output, verify:
- [ ] GloBE ETR is computed on a jurisdictional-blended basis, not entity-by-entity
- [ ] Every jurisdiction is explicitly flagged above or below the 15% minimum
- [ ] The SBIE uses the transition rate matching the stated fiscal year, and the rate is cited
- [ ] Top-up tax is applied to excess profit (income net of SBIE), not gross GloBE income
- [ ] Each residual exposure is assigned a collection mechanism (QDMTT / IIR / UTPR) and paying entity
- [ ] The ranked table totals to a stated group-level exposure figure
- [ ] Any output built on unadjusted proxy data is labeled an estimate, not a filing figure
Notes
- QDMTT takes priority: where a low-tax jurisdiction has a qualified domestic top-up tax, residual IIR/UTPR liability generally falls to zero — check this before assuming parent-level exposure.
- Jurisdictional blending means a single high-tax entity can pull a jurisdiction above 15% even if another entity there is low-taxed; always aggregate first.
- The transitional CbCR safe harbours can exempt a jurisdiction from full calculation for early years — worth checking before running the full model if the group qualifies.
- These are planning estimates. Filing-grade GloBE calculations require the full set of GloBE income and covered-tax adjustments, which should be confirmed with the group's tax advisors before submission.
How to use this skill
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