Methodology
How this calculator implements the Simplified ETR Safe Harbour under the OECD Pillar Two global minimum tax rules.
1. What is the Simplified ETR Safe Harbour?
The Simplified Effective Tax Rate (ETR) Safe Harbour is a permanent relief mechanism under the OECD Pillar Two rules. It allows multinational groups to use a streamlined calculation to show that a jurisdiction already meets the 15% minimum tax rate — without performing the full GloBE computation.
If a jurisdiction passes the safe harbour test, no top-up tax is owed for that jurisdiction in that fiscal year. This significantly simplifies compliance for groups that operate in many countries.
2. How the calculation works
The calculator follows four main steps for each jurisdiction:
Step 1: Calculate GloBE Income
Starts with the Jurisdictional Profit Before Tax (the total profit earned in a jurisdiction) and applies adjustments — for example, removing excluded dividends, equity gains, and shipping income that the rules say should not be counted.
Step 2: Calculate Adjusted Covered Taxes
Combines current tax expense, deferred tax expense, and any elected adjustments to arrive at the total taxes that count towards the minimum rate.
Step 3: Determine the Simplified ETR
Divides Adjusted Covered Taxes by GloBE Income to get the effective tax rate. If this rate meets or exceeds the minimum (typically 15%), the jurisdiction passes.
Step 4: Check eligibility
Even if the ETR is high enough, the jurisdiction must also meet additional eligibility criteria — for example, no stateless income, no unresolved investment entity issues, and no outstanding recapture amounts.
3. Key adjustments
The GloBE Rules define a number of adjustments that refine the income and tax figures. Common examples include:
- Excluded dividends — Dividends from qualifying subsidiaries that are removed from income.
- Equity gains and losses — Gains or losses on qualifying equity interests that are excluded.
- Shipping and insurance income — Income from international shipping or insurance that may qualify for exclusion.
- Foreign exchange adjustments — Asymmetric FX gains or losses that need special treatment.
- Pension adjustments — Adjustments for pension-related items under the simplified rules.
- M&A-related items — Special treatment for gains, losses, and restructuring costs from mergers and acquisitions.
4. Elections
Groups can make various elections that change how the calculation works. Some are annual (apply to a single fiscal year) and others are multi-year (apply for five years once elected). Examples include:
- Whether to include certain after-year-end adjustments in the transaction year.
- Whether to include or exclude specific transfer pricing adjustments.
- Treatment of financial services income, shipping exclusions, and tax credits.
- Loss carry-forward elections that affect how prior losses reduce current-year income.
Step 11 of the wizard provides group-wide elections at the top (e.g. Box 4.6(2), TP transaction-year method, and cross-border allocable taxes). Below that, select a tested jurisdiction from the dropdown to view and edit the full catalog of jurisdiction-scoped elections.
5. Safe harbour determination
A jurisdiction qualifies for the safe harbour if:
- Its Simplified ETR meets or exceeds the minimum rate (typically 15%), and
- All eligibility criteria are satisfied.
When both conditions are met, the jurisdiction is deemed to have no top-up tax liability for that fiscal year — which significantly reduces the compliance work required.
6. How wizard steps map to the OECD framework
Each step in the wizard corresponds to a specific part of the OECD rules. This table shows the mapping, what the calculator does at each step, and what you need to provide.
| Wizard step | OECD reference | What the calculator does | What you provide |
|---|---|---|---|
| 1 — Fiscal year | Box 1.1 Art 10.1 | Determines the fiscal year window and whether the safe harbour can apply | Fiscal year start date and any applicability overrides. The ruleset version and minimum rate are fixed by the engine. |
| 2 — Tested jurisdictions | Box 2.1–2.3 Art 10.1.1 | Sets up the jurisdictions to be tested, including currency conversion and deemed-zero checks | A list of jurisdictions (with country codes), the group's reporting currency, and FX rates if needed |
| 3 — Inputs | Box 3.1 Art 10.1.1 | Aggregates profit before tax, tax expenses, and transition year figures for each jurisdiction | Financial data per jurisdiction — either as jurisdiction totals or entity-level detail. Optionally: opening deferred tax items and transition year balances |
| 4 — Eligibility | Box 6.1–6.3 Art 10.3 | Checks whether each jurisdiction qualifies for the safe harbour (de minimis, QDMTT, routine profits) | Eligibility confirmations — for example, that there is no stateless income or investment entity issues |
| 5 — Cross-border items | Box 5.1 Section 5 | Allocates cross-border tax items between source and destination jurisdictions | Any tax items that cross jurisdiction boundaries, with source and target jurisdiction IDs |
| 6 — Adjustments | Box 4.6 / Section 5.2 Art 10.2 | Applies after-year-end income/tax adjustments and transfer pricing corrections to the simplified figures | After-year-end adjustment rows (income and/or tax) and any transfer pricing adjustment rows |
| 7 — Allocation registers | Module 5 / Box 5.1 Art 10.2 | Allocates income and taxes across jurisdictions for PEs, flow-through entities, and allocable tax items | Permanent establishment details, flow-through entity details, and allocable tax items — needed when entities span multiple jurisdictions |
| 8 — Prior-year status | Box 7.2 Art 10.4 | Determines whether a jurisdiction is newly entering or re-entering the safe harbour based on its history | A record of each jurisdiction's prior-year results (fiscal year, pass/fail, any top-up tax) |
| 9 — Integrity | Box 7.3 Art 10.4 | Cross-checks that income and tax figures are internally consistent and reconcile correctly | Integrity settings and any manual adjustments needed to resolve inconsistencies |
| 10 — DDT Recapture | Article 7.3 Art 7.3 | Tracks deferred tax liability recapture accounts and calculates closing balances | Opening balances and in-year movements for each jurisdiction's recapture account |
| 11 — Elections | Annex Various | Resolves which elections are active for each jurisdiction and fiscal year, checking for conflicts | Election selections from the catalog — the calculator validates consistency and timeline overlaps |
| 12 — Carryforwards | Box 4.4 Art 10.2 | Applies opening carryforward balances against the current year's shortfall and calculates closing balances | Opening carryforward balances per jurisdiction (from prior years or from advancing a scenario) |
7. Things to be aware of
The calculator covers the core safe harbour computation, but there are some areas where manual review or extra steps may be needed.
If your opening deferred tax items are in a different currency to the jurisdiction's state currency, you need to translate them before entering. The calculator uses the amounts as provided.
Permanent establishment allocation lines can be entered directly or imported via CSV. However, the CSV template must be downloaded and filled in manually — there is no automatic import from external systems.
When the integrity check finds an inconsistency, you can add a manual adjustment to resolve it. This creates an audit trail but doesn't change your underlying source data — it's best to fix the source figures where possible.
The calculator relies on your confirmation of whether investment entity issues exist, rather than automatically classifying entities. Make sure you review the eligibility flags in Step 4.
Multi-year tracking of deferred tax recapture requires advancing the scenario one year at a time. Batch processing of multiple years in a single run is not yet supported.
When you advance to the next fiscal year, the calculator carries forward balances, prior-year status, and FX rates automatically. However, you should review and confirm these values before running the next year's calculation.
Integrity checks compare your data against the figures you've entered. There is no automatic import from Country-by-Country Reporting (CbCR) filing systems — all data must be entered or uploaded manually.