Volume 9 • 2022 • Number transnational corporations investment and development

partner countries). The payroll component of the carve-out is calculated as 0.05 
times personnel costs divided by gross operating surplus. The tangible asset calculation 
is based on the OECD CbCR data (by partner jurisdiction). The tangible carve-out is 
calculated as 0.05 times tangible assets divided by profit (loss) before income tax. 
The estimated total carve-out share is simply the sum of the two components. When 
aggregating, only partner countries with positive profits or gross operating surplus are 
used. We also drop the cases where the carve-out share is greater than one. Taking 
a simple average across countries gives a carve-out share of 40 per cent, with a median 
value at 31 per cent. We use this average for all host countries for convenience, i.e.
CO
c
SHARE
= 
CO
SHARE
= 0.4 for all c.
Finally, Pillar Two only targets large MNEs. Therefore, calculating changes in FDI-
level ETRs for all foreign affiliates requires knowing 
ω
c
, i.e. the share of activities 
conducted by foreign affiliates of large MNEs among those carried out by foreign 
affiliates of all MNEs. The calibration of this parameter involves merging two 
complementary databases, namely: the BEA’s data on the United States direct 
investment abroad and the United States’ CbCRs.
16
The BEA’s dataset provides 
details on the activities of MNEs headquartered in the United States overseas, while 
the United States’ CbCRs exclusively cover those of large MNEs headquartered in 
the United States. The implicit assumption of using data on MNEs headquartered 
in the United States is that the relative size of foreign affiliates of large MNEs in a 
particular jurisdiction does not depend on the location of their headquarter. Denote 
S
lrgUS,c
the sales made by large MNEs headquartered in the United States in host 
country c and 
S
US,c
those of all MNEs headquartered in the United States in the 
same country c. 
ω
c
is calculated as follows:
ω
c
=
S
lrgUS
,
c
S
US
,
c