GloBE Rules: How the Calculation Actually Works

The GloBE (Global Anti-Base Erosion) computation is the machine that turns the group’s financial and tax data into the top-up tax. It is, at its core, a jurisdictional effective tax rate computation with a carve-out — and each of its parts has the adjustment rules that decide the number. This guide is the computation, step by step, with the worked example.

Step 1: the consolidated CbC group

The computation’s unit is the consolidated CbC group: the MNE group with consolidated revenue of €750 million or more (in at least one of the two preceding financial years), constituted per the CbCR rules — the same group as the CbCR, the same scope, the same constituent entities and PEs. The group’s financial statements (the consolidated, per the applicable accounting standard) are the computation’s starting data — and the group’s composition (the entities in, the entities out, the PEs’ allocation) is the first determination, per the model rules’ consolidation adjustments.

Step 2: the adjusted covered income (ACI), per jurisdiction

For each jurisdiction, the adjusted covered income is the jurisdiction’s profit, computed from the financial statement income of the jurisdiction’s undertakings, with the specified GloBE adjustments:

Adjustment	The content
The starting point	The financial statement income (the profit before tax, per the applicable accounting standard) of the jurisdiction’s constituent entities and PEs — the jurisdictional profit, on the financial statements
The tax expense removal	The income tax expense (current and deferred, per the model rules’ treatment) removed from the profit — the ACI is the pre-tax income, on the GloBE’s definitions
The specified adjustments	The model rules’ listed adjustments: the equity-method income (the removal of the share of the investee’s income, with the reciprocal treatment), the income from the transactions with the excluded entities, the loss treatment (the loss carryforward’s effect — the loss reduces the ACI, with the carryforward mechanics), the specified items (the dividends’ treatment, the capital gains’ treatment per the model rules)
The intercompany consistency	The intercompany transactions’ effects — the intercompany profit/loss (the unrealized intercompany profit, the intercompany deductions) handled per the model rules’ consistency rules, so the group’s internal transactions do not distort the jurisdictional ACI

The ACI is the denominator of the jurisdictional ETR — and it is the number the transfer pricing shapes: the intercompany margins determine how much profit sits in which jurisdiction’s financial statement income, and the ACI follows. The ETR and SBIE guide has the denominator’s detail.

Step 3: the covered taxes, per jurisdiction

For each jurisdiction, the covered taxes are the income taxes that count toward the jurisdiction’s ETR:

Component	The content
The current taxes	The income taxes paid or payable to the jurisdiction (the current year’s income tax, on the jurisdictional profit) — the tax the jurisdiction charges on the ACI’s profit
The deferred taxes	The deferred tax expense (per the model rules’ treatment — the deferred taxes on the temporary differences, with the specified exclusions) — the tax timing, counted in the ETR on the model rules’ basis
The specified adjustments	The model rules’ listed adjustments to the tax: the non-creditable taxes’ treatment, the tax credits (the specified credits’ treatment), the preferential regimes’ taxes (the qualifying regime’s tax, where the regime is recognized), the loss-year taxes (the tax credit carryforward’s effect)

The covered taxes are the numerator — and they are the tax position the transfer pricing determines (the deductible costs, the credits, the loss positions, across the entities). The numerator and the denominator move together when the intercompany price moves — in opposite directions across the two jurisdictions of the transaction, which is the Pillar Two for TP teams core interaction.

Step 4: the jurisdictional ETR, and the SBIE

The jurisdictional ETR = covered taxes ÷ ACI, per jurisdiction. The carve-out that follows is the SBIE (the Substance-Based Income Exclusion): the income that is excluded from the top-up base for the substance the jurisdiction holds —

SBIE = 8% × qualified payroll costs  +  net book value of qualified tangible assets (excluding land)

The SBIE is the substance credit: the jurisdiction that employs people (the payroll at 8%) and holds tangible assets (the net book value, land excluded) excludes that substance’s income from the top-up base — the carve-out that keeps the top-up tax on the financial profit (the IP holding, the finance entity, the loss jurisdiction) and off the real economy profit (the factory, the service centre with the headcount). The ETR and SBIE guide has the SBIE’s numbers and the worked exclusion.

Step 5: the top-up tax

Where the jurisdictional ETR is below 15%, the top-up tax for the jurisdiction:

Top-up tax = (15% − jurisdictional ETR) × (ACI − SBIE)

The base is the ACI minus the SBIE — the financial profit, the profit without the substance credit — and the rate is the gap to 15%. Where the ETR is 15% or more, the top-up tax is zero — the jurisdiction clears the floor.

The worked example

A group in scope, one low-tax jurisdiction (J1 — the IP holding, the 5% rate) and the parent jurisdiction (P — the 25% rate):

Item	J1 (5% regime)	P (25%)
Financial statement income (the jurisdictional profit)	100	400
ACI (after the GloBE adjustments)	100	400
Covered taxes (current + deferred, per the model rules)	5 (the 5% on 100)	100 (the 25% on 400)
Jurisdictional ETR	5.0%	25.0%
Qualified payroll (8% credit)	0 (the holding: no payroll)	8 (on 100 payroll)
Qualified tangible assets (NBEV, excl. land)	0	10
SBIE	0	18
ETR vs 15%	Below — the top-up applies	Above — no top-up

J1 top-up tax = (15% − 5%) × (100 − 0) = 10

The J1 top-up tax is 10 — the gap to 15% on the holding’s 100 of profit (no substance to exclude: the payroll and the assets are nil). It is charged by the mechanism that applies — the IIR (the parent jurisdiction P including the top-up in its base — P’s tax on the 10, at P’s rate, with the credit for the 5 already paid), or the QDMTT (where J1 has enacted its own top-up — J1 levying the 10 itself). The UTPR is the backstop where neither reaches it. The full mechanics in the IIR, UTPR and QDMTT guide.

The P jurisdiction: the ETR 25% is above 15% — no top-up, and the SBIE (the 18 of substance income) is the P-side computation’s carve-out, which does not engage where the ETR clears the floor.

The transfer pricing read of the example: the J1 profit of 100 is the intercompany price’s output — the royalty, the license fee, the management charge that lands the 100 in J1. The arm’s length pricing determines the 100 (the IP’s value, the royalty’s benchmark — the intangibles machinery); the GloBE computation then prices the location (the top-up on the sub-15% ETR). The two layers are separate — the arm’s length standard is unchanged by Pillar Two — and the pricing decision that was tax-neutral (the profit location within the arm’s length range) is not neutral anymore: the top-up tax makes the location cost something.

The computation’s data, and where it comes from

The computation runs on: the consolidated financial statements (the jurisdictional profit split), the jurisdictional tax computations (the covered taxes — the current and the deferred, per the tax filings), the CbCR data (the jurisdictional revenue, profit, tax, employees, assets — the CbCR and Pillar Two backbone), and the SBIE inputs (the qualified payroll, the qualified tangible assets’ net book values — the payroll records and the fixed-asset register, per jurisdiction). The data quality is the computation’s defence: the ACI and the covered taxes that do not reconcile to the filings and the financials are the computation the authority re-runs, on its numbers. The Pillar Two for TP teams guide is the data checklist.

See also

• Pillar Two explained
• ETR and SBIE — the detail
• IIR, UTPR and QDMTT — the charging
• Transitional CbCR safe harbour