Calculation of the Effective Tax Rate under Pillar Two

1.1 Formal Specification of the GloBE ETR

The determination of the Effective Tax Rate (ETR) under the GloBE regime follows a formal specification whose mathematical precision conditions the entire tax calculation chain. The ETR per jurisdiction, denoted ETR_j for jurisdiction j, is defined by the ratio: ETR_j = ACT_j / GI_j, where ACT_j represents the Adjusted Covered Taxes and GI_j the GloBE Income or Loss. This ratio is subject to a floor constraint: if ETR_j < 15%, then Top-Up Tax_j = (GI_j – SBIE_j) × (15% – ETR_j). The Adjusted Covered Taxes are obtained by the formula: ACT_j = CT_j + DEF_j – NCT_j, where CT_j refers to Covered Taxes, DEF_j to Deferred Tax Adjustments, and NCT_j to Non-Covered Taxes.

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GloBE Income is calculated based on the consolidated net accounting income or loss (NIL), adjusted for five categories of differences: equity gain or loss exclusions, fair value revaluation adjustments related to subsidiaries, gains or losses on intra-group transactions, undistributed earnings, and transitional rule adjustments. The complete formula is written as: GI_j = NIL_j + EGA_j + FVRA_j – ITG_j – UNE_j + TRA_j, where each component corresponds to a specific accounting treatment defined in Articles 4.3 to 4.5 of the GloBE rules. This algorithmic complexity requires MNE groups to implement dedicated, often automated, calculation systems to ensure compliance with reporting requirements.

1.2 Decomposition of the Substance-Based Income Exclusion (SBIE)

The Substance-Based Income Exclusion (SBIE) is the primary relief mechanism of the GloBE regime, designed to preserve the attractiveness of productive investments. The SBIE is broken down into two components: SBIE_j = SBIE_PA_j + SBIE_TANG_j, where SBIE_PA_j = Eligible Payroll Expense_j × Rate_PA and SBIE_TANG_j = Eligible Tangible Assets_j × Rate_TANG. The initial markup rates are set at 10% for the payroll component and 8% for the tangible assets component, with a linear reduction schedule over ten years reducing both rates to 5%. The annual reduction is 0.5 percentage points per year for payroll and 0.3 percentage points for tangible assets, according to the formula: Rate_PA(t) = max(5%; 10% – 0.5% × (t – 2024)) for t ≥ 2024.

For TCC portfolios, this breakdown reveals a structural deficit: carbon credit tokens generate neither eligible payroll nor tangible physical assets capable of feeding the SBIE. The entirety of the GloBE Income stems from the valuation of tokenized intangible assets, without any substance deductions. The STEELLDY simulation of a €50 million TCC portfolio held by a company with two employees and negligible tangible assets illustrates this “substance trap“: the applicable SBIE is approximately (2 × average personnel cost × 10%) + (value of tangible assets × 8%), a negligible amount compared to the GloBE income generated, exposing nearly 100% of the income to the top-up tax.

1.3 Sensitivity analysis of the ETR to GloBE parameters

Sensitivity analysis of the ETR to the key parameters of the GloBE model reveals significant nonlinearities that amplify the impact of Pillar Two on portfolios with high intangible intensity. The partial derivative of the ETR with respect to covered taxes is expressed as: dETR/dACT = 1/GI_j, indicating that a given change in covered taxes has an impact inversely proportional to the size of the GloBE income. For a TCC portfolio where GI_j is high relative to covered taxes, this sensitivity is mechanically low, making it difficult to reach the 15% threshold through traditional tax optimization. Conversely, the partial derivative with respect to GloBE income, dETR/dGI = -ACT_j/GI_j², is negative and decreasing, meaning that an increase in income reduces the ETR in a convex manner.