Step Two: Calculating Adjusted Covered Tax

After multinational enterprises complete Step One (calculating GloBE Income) for each Constituent Entity, Step Two involves calculating the Adjusted Covered Tax (ACT). While Step One focuses on determining financial accounting net income or loss to form GloBE Income, Step Two calculates corporate income tax expenses to establish ACT.

According to Article 4.1.1 of the Model Rules, the ACT formula includes:

Adjusted Covered Tax (ACT) = Current Tax Expense related to Covered Taxes + Additions to Covered Taxes - Reductions to Covered Taxes +/- Deferred Tax Adjustment +/- Covered Taxes recorded in Other Comprehensive Income for the Fiscal Year

Let's break down this formula step by step.