Sean Faulkner, Co-Managing Partner of Valentiam Group

Procuring and managing the data required for various transfer pricing compliance requirements has become an ever-increasing burden over the past decade for the tax departments of multinational companies.  Between setting transfer prices, managing cost allocations, monitoring compliance with target margins, segmenting P&Ls, calculating TP adjustments, assessing transactional data for transfer pricing reports, and gathering the data necessary for Country-by-Country Reporting (“CbCR”) – data needs are abounding in the world of transfer pricing.

Such data needs are about to become significantly more burdensome for tax departments in 2024 and beyond with the expected implementation of the OECD’s Global Anti-Base Erosion (“GloBE”) rules, the primary component of Pillar Two.  This is intended to summarize the data requirements necessary to comply with the model GloBE rules and how tax departments can start to prepare.

In article 8.1.4 of the GloBE model rules, the OECD outlines the information that would be necessary for a standardized GloBE Information Return (“GIR”). It provides a corresponding Annex that describes the specific information for a GIR, which would be prepared in addition to a tax return in any jurisdiction where the GloBE rules apply.  The GIR is the recommendation of the OECD, but the details of the requirements may vary by jurisdiction (similarly to how jurisdictions may adapt the OECD’s Local File template).

In its publication titled “Tax Challenges Arising from the Digitalization of the Economy – GloBE Information Return”, the OECD provides Annexes that list the multiple data points required for the GIR. It also provides guidance and clarification regarding such requirements.  The GIR data points are separated into three broad sections – (1) MNE Group Information, (2) Jurisdictional Safe Harbours and Exclusions, and (3) GloBE Computations.  Summarized below is some, but by no means all, of the information that may be required.

Within the MNE Group Information section, the data required is primarily the standard information that may already be gathered for CbCR purposes such as entity names, tax ID numbers, jurisdictions, ultimate parent entity, and legal structure.  Other organizational and accounting information required includes changes in structure that occurred during the year, financial accounting standards used, currency, and others.  Some of the new information reporting required in this category unique to the GIR is the effective tax rate of the entity, whether a top-up tax is payable, and the range of top-up tax that is payable.

The Jurisdictional Safe Harbours and Exclusions section of the GIR is where the taxpayer provides information on whether it will elect a permanent or transitional safe harbour, or a de minimus exclusion from providing information for that jurisdiction.  If electing one of the safe harbours, the taxpayer will not be required to complete the top-up tax computations in the GloBE Computations section.  The Jurisdictional Safe Harbours and Exclusions section is also where the taxpayer can provide information on any exclusions from the undertaxed payments rule (“UTPR”).  However, certain financial details are required in this section to prove qualification for one of the safe harbours – revenue, income, taxes, tangible assets, etc.

The GloBE Computations section of the GIR is the most onerous from a data and calculation perspective.  The information required in this section is necessary to compute GloBE income or loss, adjusted covered taxes, deferred tax adjustments, deferred tax recapture mechanisms, shipping income exclusions, and top-up taxes.  In this section, the taxpayer will also be required to make certain jurisdictional and constituent entity elections which require further data and calculations.  While much of the information required in this section already exists, the specific presentation and calculations will be new to most taxpayers.

Considering all of the information above may need to be prepared for every entity within an MNE and for every jurisdiction in which it operates, it is clear that a simple Excel model will not suffice when it comes to the GloBE Rules of Pillar Two.  At a minimum, gathering this information will require inputs from consolidation systems, tax provisions, local entity ERPs, financial planning and analysis, and other tax workpapers.

The first step for a taxpayer should be identifying internal sources of information for each of the data inputs necessary to complete the GIR.  The next step is to determine how to collect and organize the data, and then finally to develop the models to perform the computations.  Utilizing a software solution can be an invaluable way to ease some of the burden on tax departments and ensure data consistency and correctness.

PlaidCloud is a transfer pricing automation tool that can seamlessly connect to multiple data sources and automate data pulls, as well as assist in performing the GIR computations. Want to learn more? Start with a conversation. Contact PlaidCloud today >