As with many of the Pillar Two elections, this is a jurisdictional election given it applies to all relevant entities in the jurisdiction.

Article 3.2.6 of the OECD Model Rules provides that the capital gain is first carried back and offset against jurisdictional capital losses. The loss is allocated to each entity based on its ratio of capital losses to the total capital losses.

Any remaining capital gain is then allocated to the entities in the jurisdiction that realised gains in the year of the election, based on their share of the total gains. This is then spread evenly over the current year and the previous four years.

You can read more on this, including some worked examples at:

Capital Gain Carry Back Election

We’ve developed the calculator below to illustrate how the capital gain carry back election works.

It’s based on four companies in a jurisdiction.  Simply enter details of capital gains for year five (per company), and any capital losses for the previous four years.

The calculator then takes care of the rest and allocates the capital gain against losses and pro-rates any remaining gain to the relevant entities.